HGTV stars Jonathan and Drew Scott, also known as the Property Brothers, offered some advice recently on real estate investing in an era of high rates—especially what not to do.
During a wide-ranging CNBC interview on Wednesday, they sounded off on property flipping, high borrowing costs, the worst mistakes that aspiring investors make, the housing content on TikTok, and where the next big market will be.
Drew said he looks to invest over the long term and generally doesn’t flip rental properties. When structuring their own rental portfolio, there may only be one or two properties they flip for every 10 houses they add, he explained.
“Right now it doesn’t seem like a flipping market,” he said. “You just have to just adjust into what makes sense for the current market.”
Jonathan said that even though rates are high, investors should judge each property on its own merits. In fact, he and his brother just bought a 20-unit apartment building because the specifics of the deal worked out, he said.
Their focus on rentals comes as high home prices and mortgage rates have kept many Americans away from ownership. The cost of owning a home is officially the highest on record, Redfin said recently.
When asked about all the real estate advice that appears on social media apps like TikTok, Jonathan didn’t hold back: “99% of all the get-rich-quick people that you see online are full ‘beeeep.’ If everybody could do this, everybody would do this.”
Drew pointed out that their forthcoming series on HGTV, “Backed by the Bros,” is meant to help clear up confusion among new real estate investors or those who have flipped a few properties and are not yet seasoned investors.
“They get in over their heads because they’ve been watching those TikTok videos,” he cautioned. “They’re seeing this content that’s telling them, ‘You can do this.’ And then they spend in the worst way. They’re not organized.”
Indeed, not being organized is one of the biggest mistakes new real estate investors make, Jonathan said, noting that they often try to be their own general contractor and run their own projects.
But they don’t realize that when a subcontractor doesn’t show up, it can have a snowball effect that ripples through every other part of a project, he added. And the longer a rental property is sitting vacant, “the faster you’re going to dig yourself into a hole you can’t get out of.”
Another huge mistake investors make is blindly following their buddy’s advice, Drew said: “Don’t listen to random idiots that you know that has no idea about real estate or what he’s talking about. It’s usually the loudest voice in your group that’s who you listen to, and then you make big mistakes.”
The Property Brothers also offered their prediction for the next hot housing market.
“I’ll be totally honest, I think Detroit is amazing,” Jonathan said.
The Motor City was one of the hardest-hit markets during the last housing crash as the Great Financial Crisis and recession forced auto giants General Motors and Chrysler to seek government bailouts.
But as the post-pandemic housing boom has sent prices soaring in places like Florida, Midwestern cities have become more attractive. And in November, Detroit topped Miami for the first time in annual home-price gains.
Meanwhile, the Biden administration has offered the auto sector billions of dollars to encourage them to develop electric vehicles, though consumers have recently shifted away from EVs in favor of hybrids.
“When you look within a city, there’s usually a certain area of a city that’s really starting to redevelop and there’s so much potential and eventually a lot of money gets invested. And that area becomes a very valuable part of the city,” Jonathan told CNBC. “Detroit is like that on a national level. There’s so much money pouring in, so much redevelopment happening. I bet you in 20 years, it’s going to be one of the most technically advanced cities.”
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