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

Ashley:Welcome back to the Real Estate Rookie podcast where we help you get started in real estate investing the right way without the costly rookie mistakes.

Tony:That’s right. Every week we break down real questions from real investors in the BiggerPockets community, and these are the same things that you’re probably wondering as you look for your first or your next deal,

Ashley:And today’s lineup is stacked. We’re talking about three topics every investor should think about early on, even if you don’t think they apply to you yet.

Tony:First up, should you get umbrella insurance? Is it a smart safety net or just another bill that you don’t need?

Ashley:Then we’ll cover the downsides of an FHA loan. Yes, it helps you buy your first house with less money down, but there’s a few catches you should know before signing.

Tony:And finally, the age old debate neighborhood versus numbers when the deal looks great on paper, but the block’s a little sketchy, which one actually wins

Ashley:If you’re brand new and trying to make smarter decisions with your first few properties. This episode is going to save you from a lot of headaches down the road. This is the Real Estate Rookie podcast. I’m Ashley Kehr.

Tony:And I’m Tony j Robinson. And with that, let’s get into today’s first question, which comes from Taylor in the BiggerPockets forums. Alright, Taylor says, should I get umbrella insurance? I want to explain my situation and I’m curious what you all think if I should get umbrella insurance or not. I have regular insurance on all of my properties and I have two separate LLCs. I have one LLC that I use for properties that I own 100% by me and another LLC that I am using for properties owned 50% by me and the other 50% by someone else. So he’s got two rentals owned 100% by him behind one LLC, one rental owned 50% by him behind a second LLC, and then two rentals owned 50% by him that are not behind any LLCs. These are ones that the lenders would not let me move into an LLC, however, I plan to refi in the future of rates, go down and put them behind an LLC, the other property I’m looking to sell.Alright, so questions on umbrella insurance and LLCs and liability protection. I guess first let’s just put out a big fat disclaimer that Ashley and I, neither of us pass the bar. We are not attorneys or insurance agents for that matter, so definitely go talk to a qualified professional, but I think we’ll just kind of give our take and you can take it for what it’s worth. I think there’s, and Ashley, you explained this before and I thought it was like a great explanation, but the LLCs and insurance both protect from liability, but they do it in different ways. The LLC or asset protection, whether it’s an LLCA trust or whatever other NC you put your property into, the asset protection’s goal is to hopefully prevent a lawsuit from happening in the first place. We’ve interviewed asset protection attorneys, and you can get super complicated with this, but if you set your entities up in a way, sometimes it just discourages people from even trying to sue you in the first place, right? So that’s the goal of your LLCs and your trust and all the different legal entities you can use to hold ownership and protect your properties, right? The goal is to prevent lawsuits from happening.

Ashley:Tony, I think to clarify, it doesn’t prevent lawsuits from happening. It prevents them from suing you personally or prevents lawsuits against your other assets that aren’t in the LLC.

Tony:So yes, but we had a conversation with Brian Bradley who is an asset protection attorney, and I had an off the record conversation with him and he was actually saying that there are certain entity structures that you can set up where when they go to try and sue you, they realize that there’s actually nothing for them to sue because of how complicated the legal structure is. Now that’s probably like the Ferrari of asset protection that a lot of Ricks aren’t going to need, but just know if you’re a super high worth individual and you’ve got a lot of assets before you start investing in real estate that you want to protect, there are ways to really just discourage people because it is such a complicated structure to sue you at all because they realized that maybe it’s not even worth the hassle.

Ashley:That’s really interesting. I didn’t know that there was the complications. I knew if you have no equity and you’re completely leveraged, and even if they sue you, they get nothing that would deter people, but that’s really interesting. I didn’t know that about the complicating the actual setup can,

Tony:And again, don’t ask me to repeat how that was set up because I couldn’t tell you because there was something with a foreign trust or something like that or way beyond my scope, but he did educate me on the fact that that is an option. And then the other piece aside from the asset protection is the insurance itself, and that’s more so when something happens and you’re kind of in the thick of it, and insurance will usually cover damages up to a certain amount, right? Maybe it’s 500 K, maybe it’s a million bucks, maybe it’s 2 million bucks. So the umbrella policy is there as an additional layer above and beyond whatever liability protection comes with your landlord insurance. So let’s say that your landlord insurance covers you up to maybe 500 K and you get sued because someone slips and falls and they want to sue you for $1 million. Well, now you’re on the hook for that difference of 500 K. The umbrella policy is what would be that backdrop to give you additional liability protection to cover whatever that shortfall is from your landlord insurance. So doesn’t make sense potentially, but I think it goes back to what you said ash, of how much do you actually have to protect.

Ashley:Yeah, I recently did a call with a different asset protection attorney just to see what my options are and things like that, and there’s usually this big debate of putting one property into an LLC, so there’s only one property in each LLC. So if you have 10 properties, you have 10 LLCs, which I have not done that. I’ve done it more as partnerships and that’s kind of seems what this person has done in this example. So the idea behind that is if you are putting one property that if something happens with that property, they can’t take any of your other properties because it’s only in that one LLC. So there’s different ways that you can do that. What I recommend is the umbrella policies for your partnerships. I have LLCs with my partnerships, but I also have umbrella policies on top of that because I know what I’m doing, but I don’t always know what kind of liability exposure I have from my partners.So I’m not the one going out and completing maintenance or doing things like that. So I want to be able to make sure there’s an extra layer of protection in case and still, it could even be me that does something wrong, but I do still do the umbrella policy because it helps me sleep at night, first of all, and it’s just giving me more money to be able to defend myself. The LLC defend itself from losing my assets. So most people I would say they put it in the LLC, they don’t get the umbrella policy on top of that, but I highly, highly recommend that you get an umbrella policy for your personal assets. Even if you don’t have a rental property, you have your primary home, you and your significant other drive cars have an umbrella policy on that, especially if you are starting to build a nice net worth and build some kind of wealth for yourself too, is having that extra money to spend for your attorney fees for a settlement, things like that if something does happen. So I’m a big proponent of umbrella policies for sure. I think one thing to add in to real quick, with an umbrella policies, you have your base insurance, so that will pay out first and then the umbrella policy will pay out after that. So you might not even need to tap into that umbrella policy, but it’s just like an extra coverage. So first would be your landlord policy, and then that would kick in and pay out until that was spent, and then it would go to the umbrella policy too.

Tony:Last thing I’ll say is that these are not expensive policies, the umbrella policies. I was trying to find a recent quote that I got. I found one from a few years ago and it was like $2 million of coverage and obviously there’s some nuances, there are some carve outs, but it was like 500 bucks for the year. I think that’s like 60 bucks a month to get 2 million in coverage. So it is not a large expense. So if you’re on the fence about it and you feel like you’ve got enough assets to protect, then yeah, I would just say spend the 60 bucks a month and get the umbrella policy.

Ashley:Plus you can have your LLC pay the policy too if you have an LLC and the policy is for the LLC. It’s a business write off too for the premiums. Well, we have to take a short break, but when we come back we’re going to be talking about the downsides of using an FHA loan. We’ll be right back. Okay, welcome back. Our next question is from Erica, and this question comes from the BiggerPockets forums. Erica’s question is for anyone who has utilized an FHA loan, did you find it hard to find sellers that want to sell to buyers with an FHA loan due to the FHA appraisal? Does the FHA loan make you less competitive when making offers? Thank you in advance for any insight. One little thing I do want to clarify in this question is where she says, buyers with an FHA loan due to the FHA appraisal, it’s usually nothing to do with the appraisal because pretty much every bank financing you’re going to get is going to make you get an appraisal.It’s more of the FHA inspection. So if you go and you get an inspector to come out, do a home inspection, this is completely different. FHA is sending out their own inspector and they’re going to go through the property and look for things that they care about. I remember my cousin bought a property using her FHA loan and the inspection happened and they made them put up railings and there was no railings in the stairwell or something like that, and the seller refused to. So my uncle went over there and he’s like, can I just put them up so we can get this house to close? And my uncle installed the railings even though they didn’t own the house yet, just to get it to pass the FHA inspection and to move on. So the same with VA loans. They have some extra hurdles and hoops you have to go through too.So if I’m a seller and I’m reviewing my offers and one is FHA, one is VA and one is conventional, yes, I’m going to be more towards wanting to take the conventional loan because there’s not as many hoops to jump through for the funding to get approved to purchase the property. So yes, it could be a deterrent. Another great option is not using FHA and doing conventional like FHA, you can do three and a half percent down, but conventional you can do 5% down. So if you have that extra little bit of money, you’re adding more equity into your home upfront by putting a little bit bigger down payment and then you can just get the conventional loan and not even use the FHA loan.

Tony:Yeah, great points. Ashley. I’ve never personally used an FHA loan or sold to someone who has an FHA loan, but I think your points around in apples to apples comparison of offers, one with non FHA debt and the other with FHA, the FHA is probably going to be a little bit getting the short end of the stick, but to that point, I think there are ways that you can make your offer a little bit stronger as well. Purchase price is one. If you just simply offer more money, I think that’s always way to entice the seller your earnest money deposit. If you say, Hey, I’m willing to give a bigger EMD to maybe get this deal done, it’ll show that even though you’re using FHA, maybe you’re a little bit more committed to getting the deal done. Speed is always important, but with an FHA, it’s probably a little bit out of your control If you’re closing with some other form of debt, I think that’d be easier, but those are probably the two things that I would focus on and maybe even just in your contract saying that maybe you’re willing to fund some of those repairs yourself up to a certain amount.So I think it’s just trying to understand what the seller’s motivations are and doing your best to speak to those specific motivations even if the FHA inspection is a little bit of a headache. Alright guys, we’re going to take our final break while we’re gone. If you haven’t yet subscribed to the Real Estate Rookie YouTube channel, make sure you do that. That way you can see mine and Ashley’s beautiful smiling faces every time you consume the content from the podcast. But we’re at real estate rookie on YouTube, you guys and find us there. We’ll see right after the break. Alright, we’re back here with our final question and this question comes from Anthony in the BiggerPockets forum. So Anthony says, I’ve started looking for properties for a long-term rental investment. I’m in Greenville, North Carolina, a smaller city, about an hour east of Raleigh. Since I’ve started looking, I have come across a few decent options.I found one property that has a good cash on cash return and a potential 10% cap rate, but it’s in a lower income area and an area with higher crime. The property itself is in decent shape, the numbers line up and I’m thinking about going to put in an offer. However, I have some reservations about the street, the vacancy rate of the neighborhood, and just the overall gut feeling I get when I’m there. Is my concern about the neighborhood justified or is this a common rookie mistake? Any thoughts from more experienced investors, pros and cons for investing in lower income areas would really appreciate any feedback? It’s a great question and I think a lot of rookie investors get googly-eyed when maybe they see the prices for some of these properties in areas of town where, yeah, maybe there is maybe lower income or higher crime.They’re like, well man, I can make a ton of money in terms of cashflow on paper from what this deal looks like. And that’s not to say that every area that’s lower income or with higher crime, it’s a bad area to invest in, but I think you’ve really got to know the location to be able to find that balance and strike that balance. As you said quite a few times that some of your deals that look great on paper ended up being some of the hardest to manage. What’s your experience been with great deals on paper, maybe not as great of an area in real life?

Ashley:Yeah, I mean, I hit the 3% rule at one of these 20,000 duplexes. I was like, this is great. Everyone’s complaining. They can’t even hit the 1% rule of having one month’s rent, be at least 1% of the purchase price of the property. It’s getting 3%. I’m like, this is great. This is a home run deal. It was one of my worst properties. So this property, I think the main point of looking at these properties is first, what are you going to be putting into the property? Are you bringing enough money and does this deal still work if you’re completely renovating the property? Okay, I had two pain points on this property and it was tenant turnover and it was repairs and maintenance. And the thing was that the property was $20,000. It was in decent shape, but it had bandaid after bandaid after bandaid put on the property before I even purchased it.And so for me to completely renovate these to make it nice, they would’ve been full gut rehabs and if I would’ve put the money into doing that, the numbers would’ve no longer made sense. And I’m like, they’re already rented out. I can do a couple cosmetic things. This is great, let’s go. And that was not the case. There was constantly repairs that needed to be made, capital improvements down the road, and then just the tenant turnover. So just you get into some of these neighborhoods, and this wasn’t in the city, these were small rural towns, but there was way more turnover. It was harder to get a quality tenant. Most of the renters in the area were because they couldn’t afford to purchase a house, not because they chose to rent. And then just the low income where people were stretching it to make ends meet.So evictions, late payments, just turnover to people constantly moving higher crime. So it didn’t work out for me. So there was too many headaches that it wasn’t worth the money. So I had about five of these duplexes and there was two towns where I had these properties and I’ve sold them all. I’ve got rid of them all. Luckily I was very fortunate to buy them in 2017, 2018, and then I sold them in 2021 and it was like three times what I bought them for. This is great. So it worked out, but timing the market is not something you can predict or count on. But I would say if I could do it differently, I would’ve waited and I would’ve, if it was either I needed to save a bigger down payment or I needed to negotiate a different seller financing deal, I would’ve waited and built my portfolio slower instead of just trying to accumulate units.And this is how I’m going to get so many units because I’m buying $20,000 duplexes. Instead, I’m going to buy quality properties and really take my time and grow slowly and make sure these are properties that I do want to hold on. So if I could go and do it again, I would do that. But if this is the only way that you’re going to get started, just prepare yourself that you are going to have more repairs and maintenance and vacancies than you expect and make sure those numbers are inflated when you do deal analysis compared to maybe buying in a B class neighborhood.

Tony:Actually our friend Steve Rosenberg, he shared a story, I think it was at an event that we were at together once where he had a portfolio of a lot of homes that were in call it C or D class neighborhoods, lower income, higher crime, exactly what Anthony described here. And it was the bate of his existence and he ended up selling that portfolio off to another investor and he somehow came across that investor a few years down the road and he was like, dude, how’s that portfolio doing that you bought from me? He was like, oh man, these are my best performing properties ever. Same exact houses, same exact tenant pool, but two totally different experiences. And what Steve shared was that the guy who he sold to, he had the right approach, systems, processes, frameworks to deal with that type of product and that type of tenant pool.So I think that if you are thinking about going into that type of product, then just make sure that you are equipping yourself with the right tools and resources to do it effectively. I would encourage you to maybe talk to property managers in that area and maybe get their sense of like, Hey, what do you see? What’s working well? What’s not working well? But really, really make sure you’ve got a rock solid process for vetting, for maintenance, for rent collection because I think it can be successful. We know a lot of folks who invest in lower income neighborhoods that do incredibly well, but I think it does come down to the operator and how they work. I think the last thing I’ll say, Ashton, we don’t talk about this a lot and I feel like we should do maybe an expert led episode on this, but going after Section eight tenants might be a great way to mitigate some of those challenges as well.Now, just like every other tenant, not every section eight tenant’s going to be great, but I think there is maybe a stronger motivation from folks who are on a voucher program to stay in their units longer. And there’s also the government subsidies that allow them to make those rent payments. So maybe that’s an option where you go into that same neighborhood, but as opposed to just opening up to everyone, you really focus on the section A program to try and at least get a little bit of support on making sure those rent payments come in.

Ashley:Yeah, I’ve had several Section eight tenants, I don’t have any right now, but I found that very true that with them, they would make their payments, their portion because they did not want to lose that. Last time I checked, I think it was like an eight year wait list to get a voucher in my market. So the thing that I did find was I had several tenants go on temporary vouchers from a very local housing authority or things like that, and that’s when it didn’t work out where it wasn’t like this could be something they’re set on for a long time. It was like, okay, they’re going to pay my rent for six months to help me out, and those are the people that ended up just stopped paying. They got too comfortable with having that. And then when the six months was up, they didn’t pay and we had to go through with eviction.So I found if it’s a set program where someone’s on for long-term seems to work out better than if it’s just a short period of time. So I feel like it almost enabled them and they got kind of used to having that where maybe they weren’t budgeting and saving and expecting when those six months end to start paying again. But that was just in my experience in those markets of the section eight tenants were great. Section eight comes in, the housing authority comes in and does an inspection every year. And not only to make sure you as the landlord are doing everything correctly, but also they’ll make sure that the tenant is keeping the property in good order too. There’s not holes in the wall, things like that. I did sit into a housing authority, had some kind of meeting or whatever one time it was like a free class or something, and I went to it and they had somebody speak and it was like somebody from a homeless organization and they talked about how you can list their units with them and they’ll put homeless people in those units and then they will pay for them.And one of the things they did was they did a monthly inspection of the property that was provided to the landlord every month. I never did anything with that housing organization, but I guess there’s other ways, other organizations that place people and things like that too, where you can get on their listings just like Section eight and have a housing specialist place someone into your property that’s already approved. So that’s another nice thing about section eight is that you can list your rental with them and if you are one of their providers that work with them, they can easily place a tenant in your property and it can really cut down on having to find a tenant and things like that too. One thing I do think we have to address, and this episode isn’t airing until quite a while from when we’re recording this, it is October 29th that we’re recording this, and this is when the government shutdown is happening, and there’s always been this big sig that Section eight rent is guaranteed during COVID.No offense that a lot of you Section eight landlords are bragging like, oh, this is guaranteed income section eight, I don’t have to worry about not being paid. But now there’s a lot of talk about what happens when the government runs out of their reserves to actually pay the Section eight vouchers. So in most cases we will most likely, even if they stop payments, that you will receive your back pay when the government opens up again. But what do you do in the meantime? And during COVID, a lot of landlords experience this is like beef up your reserves, make sure you have some kind of safety net if that is to happen. And you can’t take action on any of these tenants. If their vouchers aren’t paid, you cannot evict them because the government is not paying their portion. And I think this is just another warning sign for landlords always have those reserves in place.You never know what is going to happen. That will be out of your control. We saw that in COVID and we’re seeing that now possibly with the government shutdown. So hopefully by the time this airs, the government is back up and running. This is not a concern at all, but just a prime example of making sure to really beef up your reserves and to not be over-leverage and to not put yourself at so much risk too as a rookie investor. Well, thank you guys so much for joining us today. I’m Ashley. He’s Tony, and we’ll see you guys on the next episode of Real Estate Rookie.