2025 Investing Update: Mortgage Rates Fall, New Tax Laws Coming

0:00Real estate investing feels a little different today, but it shouldn't stop you from getting started. In today's episode, we're going to break down how we're navigating interest rates, why we're maybe changing our strategies, and what our portfolios look like today. We're also going to get a little insight as to what market Tony is looking at today, and also why Ashley is now a short-term rental manager.

0:28Welcome to the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And with that, let's get into a few updates on the market first. Tony, let's start the discussion off today with some of the market conditions in 2025 and some of the changes we've seen happening and maybe will be happening. So the first change I want to discuss is the big, beautiful tax bill. So, Tony, is there anything that maybe you are going to do to pivot and change your strategy going forward? I think for me, a lot of it is more so doubling down on what we've already done. Part of the reason that we started investing in short-term rentals was because of the short-term rental tax loophole, which allowed W-2 employees to leverage depreciation of their short-term rentals and apply that against their W-2 income, which is unique to short-term rentals.

1:23You can't do that with long-term rentals unless you're what's called a real estate professional, which is virtually impossible to do if you're working a W-2 job. But as a W-2 employee, the short-term rental tax loop allows you to do that. And the way that it was initially set up when we started investing was that you could buy a short-term rental, do this cost segregation study, and there was this 100 % bonus appreciation, which allowed you to basically get this big, massive write-off in year one. That was phasing out year over year. So it went from 100 % you could use to 80 % to 60 % to 40%. But now with the One Big Beautiful Bill, it's back up to 100%.

2:01So I think there's going to be a renewed interest in short-term rental investing, if no other reason than the tax benefits that come along with it. So we did a lot of cost eggs in the last few years. We've got like a good bank of tax benefit, but I think it is starting to run out. So if we kind of get back into the acquisition mode, I think it'll help us make sure that we can keep those taxes offset. So I think I'm happy to see that more than anything because it just validates the path that we've gone down. Do you think that it will create like this influx of short-term rental investors? Because I feel like there was kind of a mix of that in 2020, 2021, and a little bit into 22, where we saw so many people buy short-term rentals.

2:41But that was also because of the great daily rate, the nightly rate that you could get, how everyone was traveling. Also, the low interest rates. So now we're not seeing as high of nightly rates for everybody, just the unique experiences. But do you think we'll see a surge because of this tax loophole that's back to 100 %? Yeah. If I had to make my most educated guess, I'd say no. because to your point, a lot of the folks that were jumping into the Airbnb space, the short-term rental space before, they were doing it, many of them, with the goal of increased cash flow, thinking it would be an easy play to get more money on a monthly or annual basis, whereas this change is going to be more so targeted towards the folks who are already high-income earners.

3:28And they're looking at the strategy more so from a tax strategy perspective of preserving more of the money that they're making. And I think just naturally, there's less of those folks in the United States and there are people looking for extra money. So I would be surprised if we saw like the, you know, the massive amount of folks getting into the space of what we saw before. But I do think we'll see maybe renewed interest within that specific subset of folks getting back into this. I think the other one too, Ash, I don't know if you saw this, but there was a lot of talk about the 1031 exchange maybe getting axed, but the One Big Beautiful Bill preserved that as well.

4:03And I think that's another, I guess like it's a tax strategy, obviously, but it's just another way that real estate investors can scale their portfolio without losing a bunch of money to taxes. I was super happy to see that get preserved as well because I think the goal for us is how can we maybe get rid of some of these smaller deals that we have and parlay those into larger properties, maybe more hotels or motels. Yeah, without paying taxes on the sale of the smaller one and then just being able to use those funds into the next deal. One thing I really like about the 1031 exchange too is you You don't have to use all of the funds or the proceeds from the sale of that property.

4:43So if you wanted to keep$50 ,000 in cash, you could not roll that into the next, but you're just going to pay taxes on that$50 ,000. So I really like the flexibility of the 1031 exchange. Obviously, you have your timelines and things like that where you have to identify your property, close on a property. You can't just say, oh, eventually I'm going to buy another property with these funds and let it sit in a high-yield savings account for five years until you decide to buy something else. There's a strict timeline you have to follow. But the other thing that I saw that was kind of interesting, and this isn't something that has gone into effect, there's just been different people from Congress who have kind of put in their ideas of what should happen with primary residences and being exempt from capital gains tax.

5:35And so there's a couple different things where one is increasing it so that right now it's at$250 ,000 for single and$500 ,000 for married, where that would pretty much double. And then another one was just to completely eliminate taxes altogether on the sale of a primary residence, which I don't think that one will happen. I don't think they will completely eliminate it. But the reason they're looking at this is because the values of homes have changed so much since these amounts were set. And I can't remember offhand, but it was a long time ago that they actually set these metrics of $250 ,000 and$500 ,000 in place.

6:25And you live in a city like Seattle or a high cost of living area, you can very easily live in your property for three years, five years, and obtain more than a million dollars in equity, especially if you bought it five years ago. So I think the next thing that's going on right now that's really impacting real estate investors, obviously are interest rates. We're holding like just south of 7%. I think I checked last night, we're at like 7 or 6.7 and some change, right? Like around 6.8. Though it is coming down, you know, and I think there's a lot of pressure economically on interest rates to start falling.

7:08Yeah, Ash and I are not economists, but there was a job reports that came out recently that was, I don't know, it was like 73 ,000 jobs got added, which is really low. They revised the previous month's numbers down by a big margin as well. So we're starting to see signs that the economy is starting to weaken, I think, a little bit. And as that happens, we'll start to see interest rates, I think, drop. So I think a lot of signs are pointing to the Fed. I think their next meeting is in September, so a month from now. And I think there's a lot of signs that they will drop the Fed funds rate. But I think in anticipation of that, we're already starting to see interest rates come down on the mortgage interest rates.

7:44So I've talked to a lot of folks who are a lot smarter than me when it comes to this. And there's this big consensus that when rates can kind of get to 6 % or lower, that's when you'll unlock a lot of the kind of buyers that are waiting on the sidelines. And I think it's a double-edged sword, Ash. And here's what your take is, right? It's a double-edged sword for investors because if rates get below that threshold that a lot of folks are talking about, obviously it makes deals more affordable, right? We're getting our principal and interest payments down to a more affordable level, which makes it easier to have those deals pencil out.

8:18But then it also unlocks all of these other buyers, which then means we're competing with more people, prices are going to go up, and now we're kind of fighting a different battle. So I think we are, I think we're in the sweet spot. You know, we had Jeff Welgin on a few episodes ago, and he talked about this as well. But I think we're in the sweet spot where if you buy a deal today that is still cash flow positive, we probably have an opportunity in the next, 12 to 24 months to refinance that deal. And your worst case scenario is that you have a deal today that cash flow is okay. And your best case scenario is that you have a deal that cash flow is okay today and cash flow is amazing in 12 to 24 months when you refinance.

8:56So I think if you're waiting for rates to go down, I think that is the wrong move. I would rather challenge you to find a deal that makes sense today. And then if the opportunity presents itself to refinance and turn it into an even better deal, then you'd take that opportunity. But I think waiting is the wrong move. What's your take, Ash? Yeah, I definitely agree. I don't think going into a deal relying on interest rates to be cut, that is the wrong move also. Don't get into a deal saying, oh, well, I'll just refinance when rates go down. I can weather this property for a year with negative cash flow and just wait.

9:31That is also the wrong thing to do. But if you work harder to find deals, you'll see investors, maybe they're not getting as many deals because they're really focusing on finding the good ones. And that is harder to do today. I do listen to a lot of podcasts about the economy and the market. and it seems as though the prediction, and they will say these are just predictions, is that there will be two rate cuts this year, each a quarter percentage of a point. And so we'll see that in the end of the year. But who knows? Those are just predictions of what will happen. When you are thinking, okay, I'm going to get this property now, and if rates do drop, I do want to refinance to get that lower rate, make sure you're taking into consideration closing costs.

10:23I don't want you to get excited that you're able to refinance because they just announced a rate cut and you're going to have a little bit more cash flow. Look at what the closing costs are. Is it actually going to be worth it for you to refinance for half a percentage point less and still pay the closing costs? The two DSCR loans that I have done, they both have required two-year prepayment penalties too. So if I do go and refinance in the first year, I'm paying a 2 % fee on the balance that is paid off. And then if it's the second year, I'm paying a 1 % balance on the balance that I'm paying off.

11:07So there's that to look at. And also, too, the purchase price, whatever you purchase that property for, you owe that money. That is money that somehow you have to pay back or money that you already spent if you paid for it in cash. There is no changing what you purchased the property for. The interest rate, that can change. So I think I would rather find a really good deal now, pay less for the property, then wait until it's easier and pay more for the property. even if it's going to cash flow a little bit more because I have that lower interest rate, but it also could not cash flow that much more because you're going to be paying more for the property if there's more competition and more buyers come back into the market.

12:05So always look at that too as to, you know, you can pay off the property and that payment is gone. You can, pay the property off and your interest rate is gone too. So I think make sure you're just looking at all sides of it and not just thinking, oh, if rates drop, let's go ahead and refinance. Yeah. Date the rate, marry the house, right? So I think there's something to be said there as well. I think next, Ashley, let's talk about what's going on at a regional perspective. Because we talked macro, right? Interest rates are affecting everyone macro. Tax changes, that's a macro impact as well. But regionally, I think we're seeing a lot of shifts in markets as well.

12:49A few years ago, it felt like Florida was one of the hottest real estate markets on the planet. It's like everyone was leaving California. They were going to Texas. They were going to Florida. But I think we're starting to see some of those trends reverse. And I think part of it is insurance costs. Places like Florida are getting harder to insure. Places like even parts of Texas, hurricanes, New Orleans, and other places where insurance prices are rising. But I think we're seeing some regional trends that are also starting to impact investors. How are things looking where you're at in Buffalo, Ash?

13:26Are you seeing the market improve? Is it getting shakier? What are you seeing in your neck of the woods? We're definitely seeing more inventory, more days on market. But the property type that is actually selling the best is the mom and pop home that isn't updated, but it is extremely well taken care of. It is clean. The foundation is strong. There's not repairs and maintenance that need to be done. It just cosmetically would need some updates, but it's still good. And those are the properties that you're seeing going for over asking, getting flooded with showings as they're somewhat still affordable because they're not completely remodeled, but they're in really good shape and condition.

14:17And that's what I'm seeing, at least just looking at the inventory in the different little neighborhoods that I invest in, are those are the ones that are going so fast. It's not the high end luxury homes. It's not the dilapidated. It's almost like starter homes, I would say, in a sense. But overall, like Buffalo made a list of like number two for least days on market. Rochester, New York was number one. But that was also several months ago that list came up. I think what we're seeing is like I'm in Southern California, right, which is a very, you know, I think distinct real estate market. But what I've noticed is that I, you know, because we flip homes, we probably flip a couple homes a year.

15:03We only bought one flip last year. And part of the reason that we only bought one was because I felt like I was seeing sellers, even especially like the wholesalers that we work with, who were presenting me with deals where the price point relative to the margin, like it was just way too tight. You know, like they're sending me properties like, hey, you can pick this up cash offer at, you know, 565 and your ARV is 615. It's like that is such a tight difference between what they're trying to wholesale it to me for what the ARV is. And it's like, OK, do I want to go out there and risk half a million dollars to maybe make 15 ,000, you know, or can I go into a different market?

15:46And, you know, I've talked about in the podcast that we took a trip out to OKC about a month ago. And the goal of that was, can I get the same raw dollar amount, but do that in a market where the entry price points are significantly lower? And there were a lot of things that we saw in the OKC market that made me more confident starting to build a flipping ecosystem there, as opposed to trying to continue to bang my head against the wall and flip in a super competitive, overly expensive market like California. So that's a big shift we've made. Just kind of seeing where buyers are at, where sellers are at, the type of risks we're willing to take on is, hey, I'm just going to leave that to the side.

16:28Let me go focus on a market that's a little bit more, a market that can present a little less risk. And I think that's what we found in OKC. OK, we're going to take a short break. And when we come back, we're going to check in on mine and Tony's portfolios to see how they performed so far in 2025. Most deals don't fall apart because of the numbers. They fall apart because of the financing. You find a property that cash flows. The deal makes sense. But then the lender looks at your personal income, your tax returns, your debt to income ratio, and suddenly the deal doesn't qualify. That's the disconnect.

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19:17They've completed tens of thousands of studies across all 50 states from remote cabins to apartment complexes. So if you own investment property, this is a no brainer. So visit costsegregationguys.com slash BP for your free proposal and find out how much you could save this tax season. Okay. We're back after our short break. Thank you guys so much for checking out our show sponsors. So Tony, give us a little oversight of where your portfolio is at today because I don't even think I know how many short-term rentals you have now and everything that's going on. So we've sold off a couple. We sold one of our short-term rentals maybe three months ago.

20:01And that was like one of our earlier cabins that we bought. And just like when we looked at the cash flow relative to the equity, we feel like it was the right move for us to make, allow us to inject some capital back into the business. So again, our single family short-term rentals are really in two main markets. We're in the Smoky Mountains, we're in Joshua Tree. The Smoky Mountains, that market's been pretty steady for us, right? It's just like, obviously it came down from the super high peaks of 2020 and 2021. But after that, we've had pretty consistent performance year over year. So that market's been pretty solid.

20:32Josh, on the other hand, that one really bottomed out, I'd say, in probably 23. If you looked at, if you graphed our revenue market-wide across that portfolio, peaked in 2022 probably, or maybe 21, a little bit of a dip in 22, bottomed out in 23. We saw a rebound in 24. And 25, we pretty much paced mostly to kind of what 24 has done. And that tracks mostly with how that market has performed as well. Now, that's aggregate across our portfolio. If we were to like drill down on certain properties, we have some properties that are outperforming. And I've probably got, I don't know, maybe four out of the 18 properties that we have in Joshua Tree that are just like underperforming, like losing money.

21:17um so the goal with those is like how can we stabilize those properties can we reinvest back into those um so we're building a pool at one of them right now um and we're just trying to see like hey what other levers can we add to get these bottom performers performing like our our top performers in that market i was going to ask what do you notice a difference between like the top performers is it maybe they're like in a different neighborhood or they're bigger can fit more people Are you noticing anything like that? We've dug into this data pretty extensively. And those four properties, those are all the larger renovated homes that we have in that market.

21:56So we've got a couple three bedrooms. Actually, one of the two bedrooms is slightly newer. So that one's a little bit of an anomaly. But the other three are three-bedroom properties that we rehabbed. The majority of our portfolio in that market are new construction tiny homes that were built between 2020 2020 and 2022. So these are like new products. And what we've seen in that market is that the top performers tend to be new construction. So when we look at the other three bedrooms, we're talking about properties that were probably built between the 90s, maybe early 2000s. So these are products that are 30 years old at this point.

22:38And although we've done a good job rehabbing them. These are still 1990s products that we're trying to compete with purpose-built short-term rentals that were built in 2024. And I think we're seeing better amenities added to the new construction. We're seeing higher ceilings. We're seeing better floor plans. It just flows better. They're both three bedrooms, but the square footage is bigger. So we came to the realization that if we can't compete on a footprint perspective, okay, can we take the resources that we do have, which in a lot of these bigger properties is just space in the backyard, like outdoor space, and try and compete there.

23:14So we added our first in-ground pool last summer, or last spring, actually. That one helped a lot with one of our three-bedroom properties. We're adding that now to a few of our other properties as well to see, okay, if we can't get them within the four walls, can we just make the experience better? So that's what we're focusing on right now. And then what about the motel? So you have your one motel in Utah. Go over that. And any other properties besides the motel and the short-term rentals? Yeah. The motel has been, I think, the bright spot for sure of the portfolio because it's – we launched it in spring of last year.

23:54And I'll give you guys the numbers really quickly because I think it's interesting. And it's really kind of shifted my mindset of what kind of properties you want to buy moving forward. Because I'll tell you guys, just like hands down, managing the 13-room motel, significantly easier than managing 13 separate single-family Airbnbs. The quality of guests and their expectations on the 13 single-family Airbnbs, significantly higher than what we see on the motel. The reliance on a single OTA, very high with the short-term rental single-family homes, very low. We've got a really good mix of the different OTAs or indirect booking website with the motel.

24:36And Airbnb has recently made a lot of changes that I'm not super stoked about. So the fact that we don't have that same reliance on the hotel has been awesome as well. So it's really, I think, encouraging me to like our next purchase will most likely be like another motel. But again, we bought that property for just under a million bucks. We dumped in another just over$400K on the rehab. So we were all in for like 1.35, I think was like our total all-in cost. And the first year, so from April of 24th at the end of the year, I think we did like$190 ,000 in revenue. But our last 12 months, so if I look at August, we're recording this in August, we'll look at August of 24 to August of now, we've done, I think it was like 310 ,000 in revenue.

25:21and our projections were to do about 350. So we're a little bit behind, but it's encouraging for me to see that we're actually trekking towards what that projection is. And I feel like we're getting into our rhythm now from a management perspective, from a pricing perspective, and all signs point to this deal being a really, really solid deal for us. I'm super excited about it. Now, does this qualify for the short-term rental loophole? It does, but it's because we We had to set it up in a very specific way to do that. If it was a traditional full service hotel where guests come in, they walk up to the front desk, someone greets them, they say, hey, Mrs.

25:58Care, you're in room number 12. Here's your room key. Housekeeping knocks on your door in the morning saying, hey, would you like some service? If we did all of that, it wouldn't qualify. But we run this hotel the same way that we run all of our Airbnbs. So it's full of self-check-in. like the, there's no one stationed at the front desk. It's not even open to guests. We don't offer any midterm stays or midterm, sorry. We don't offer any mid-stay cleaning. If someone asks for something like specific, then we'll drop off more towels or more coffee pots, whatever it is. We're not going in and turning the rooms during each day.

26:36And that limited service allows us to still operate as a short, we're just a short-term rental that's in a motel. And because we've set it up that way, it allows us to still qualify as a short-term rental. We're going to take a short break, but when we come back, we're going to find out what is going on with my current portfolio. We'll be right back. If you think property management is expensive, try mismanaging a vacancy or an eviction or a maintenance issue that turns into a five-figure problem because no one caught it early. That's expensive. A good property manager isn't overhead. Their protection against small mistakes turning into big losses.

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