HGTV stars Jonathan and Drew Scott, aka Property Brothersrecently gave some advice on real estate investing in this high-stakes era, especially what not to do.
During the large-scale CNBC Interview On Wednesday, they talked real estate flipping, high borrowing costs, the worst mistakes new investors make, housing content on TikTok and where the next big market will be.
Drew said he expects to invest for the long term and generally doesn’t turn down rental properties. When structuring your own rental portfolio, there may only be one or two properties for every 10 homes you add, he said.
“It doesn’t look like a turning market right now,” he said. “You just have to adapt to what makes sense for the current market.”
Jonathan said that while the stakes are high, investors should evaluate each property on its own merits. In fact, he and his brother had just bought a 20-unit apartment building because the specifics of the deal had been taken into account, he said.
Their focus on rentals comes as high home prices and mortgage rates keep many Americans from owning. The cost of owning a home is officially the highest it has ever been, Redfin said recently.
When asked about all the real estate advice that’s popping up on social media apps like TikTok, Jonathan didn’t hold back: “99% of all the get-rich-quick people you see online are full of B-E.” If everyone could do it, everyone would do it.”
Drew noted that their upcoming series on HGTV: “With the support of the brothers“” is intended to help clear up confusion among new real estate investors or those who have sold multiple properties and are not yet seasoned investors.
“They’re getting stuck because they’re watching these TikTok videos,” he warned. “They see content that tells them, ‘You can do this.’ And then they spend in the worst possible way. They are not organized.”
Indeed, lack of organization 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 manage their own projects.
But they don’t realize that missing a subcontractor can cause a snowball effect that ripples through the rest of the project, he added. And the longer a rental property sits empty, “the sooner you’ll dig yourself into a hole you can’t get out of.”
Another huge mistake investors make is blindly following the advice of their buddies, Drew said: “Don’t listen to random idiots you know who have no idea about real estate or what they’re talking about. You usually listen to the loudest voice in your group and then make big mistakes.”
The Property Brothers also offered their predictions for the next hot housing market.
“I’ll be completely honest, I think Detroit is awesome,” Jonathan said.
The Motor City was one of the hardest-hit markets during the last housing crisis, as the Great Financial Crisis and recession forced auto giants General Motors and Chrysler to seek government assistance.
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 beats Miami for the first time in the annual increase in housing prices.
Meanwhile, the Biden administration has offered the auto sector billions of dollars to encourage it to develop electric vehicles, even as consumers have recently shifted away from electric vehicles in favor of hybrids.
“When you look at a city, there’s usually a certain part of it that’s really starting to redevelop and it has so much potential and ends up with a lot of money being invested in it. And this area is becoming a very valuable part of the city,” Jonathan told CNBC. “Detroit is the same nationally. So much money is being poured in, so many redevelopments are happening. I bet that in 20 years this will be one of the most technologically advanced cities.”