March/April RIA Roundup: Section 8, Realtor Fees, & The Real Risks of AI
The RIA Roundup is a monthly real estate newsletter with the latest stories, data, and insights curated especially for rental property investors.
In this issue:
Lead Story: Section 8 Gurus
Portfolio Updates
In Other News…
Final Thoughts: Jobs & AI
Lead Story: Section 8 Gurus
The idea of being a “Section 8 investor” — i.e. a rental property investor who focuses exclusively on Section 8 as a strategy — seems to be having a moment. The strategy is being pushed by a handful of online content creators making big claims about what Section 8 investing can do. One of them, a guy named Karim Naoum, is a 22-year-old “guru” promising investors 50%-100% cash-on-cash returns in his Section 8 program. (As a point of comparison, I steer my clients toward expectations of 5-8% cash-on-cash, given today’s interest rates.)
The basic pitch goes like this: sign on with Karim, buy a bunch of houses for just $8K-$12K down each (which are also, amazingly, fully turnkey) and then exclusively target Section 8 tenants in order to achieve significantly above market-rate rents, and BOOM! Easy 50%+ cash-on-cash returns. He even “guarantees” it — for the low, low price of $15K for his program (that’s his current fee according to recent online forums, but because he doesn’t publish them, it’s hard to know for sure.)
Sounds great, right? There’s just one problem: every element of this promise is a lie.
And yet, in speaking with prospective investors over the last few months, I’ve increasingly been encountering people who have found Karim online and believe his claims. A few have even signed on with him, only to be disappointed. After the fifth or sixth time hearing his name in an initial consultation call, I figured it was time to take a very close look at this kid and what he’s promising.
Which is exactly what I did in a recently published article. This isn’t a take-down article, per se, but there are some real problems with the claims Karim and his fellow “gurus” are making. If you want the REAL story about Section 8 investing, check it out.
Also on the blog this month:
Portfolio Updates
After a strong start in January, February was a tough month as I absorbed the costs of the turn at Property #13. Then I recovered a bit in March.
But I have another turn coming up at Property #23, where I just took back possession after an eviction. Then, there will be (at least) two more turns this summer, as two tenants have submitted their notice-to-vacate. It’s always better when tenants leave “the normal way”, indicating their intention to vacate well in advance, because this typically means the turns will be quicker, more orderly, and less costly. That’s about all I can hope for at this point, as it won’t be possible to avoid these turns.
In total, I’m already a little behind my cash flow targets for the year, and the prospects for making this up in the coming months are not great given the planned turns. Still, coming in a bit below my targets still leaves me with very healthy cash flow — here are my updated figures for the first three months of 2024:
And now this!
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In Other News…
Real Estate & Business, Domestic News
National Association of Realtors agrees to slash agent commissions. In a bid to resolve numerous ongoing lawsuits against the organization, the NAR agreed to pay $418M in fines and eliminate their rules on commissions that have made the 6-percent agent commission the American standard. The agreement will still need to be approved by federal courts, but it would blow up the way real estate is transacted across the country, and will likely significantly reduce costs for people selling their homes. (I wrote in more detail about this topic in the November Roundup last year.)
Baltimore bridge collapses. After a cargo ship lost power, it cruised directly into the Francis Scott Key bridge, causing it to collapse. The accident killed six workers who were on the bridge, and continues to cause major disruptions to both traffic and to cargo shipments into and out of the port of Baltimore.
The State of the Union. President Biden delivered a fiery address to a joint session of Congress, forcefully defending his first-term accomplishments and laying out the case for his re-election. The speech was effective enough that right-wing pundits (hilariously) accused him of being on performance-enhancing drugs.
Trump on trial. Meanwhile, former President Trump is standing trial in New York criminal court, defending himself against charges that he falsified business records to conceal a hush-money payment to a porn star — a payment that was designed to buy her silence about their affair to protect then-candidate Trump’s 2016 election prospects. (Totally normal, everyone does it, amirite?!) Remarkably, this is probably the LEAST scandalous/troubling of the four criminal indictments Trump faces. This trial may last until June, while the other three are unlikely to go to trial before the election.
Abortion fights heat up. Less than two years after the overturning of Roe v. Wade, abortion will be a big issue in the upcoming election — particularly as states pursue increasingly aggressive bans. The Florida Supreme court green-lit a 6-week abortion ban, only for Arizona to announce “hold my beer” as it deemed that a law from 1864 that bans abortion completely is still in full effect. (Fun fact: Arizona didn’t become a state until 1912.)
Oregon backtracks on drug legalization. Oregon’s experiment with decriminalization of hard drugs has not gone well since it became law in 2021. Now, lawmakers there have taken steps to reverse course.
Bitcoin surges to new record high. Defying predictions that the crypto winter would be permanent, Bitcoin surged to a new record high of over $69,000 per coin. (It has since slumped to $60K). The huge rally was fueled by the new availability of Bitcoin ETFs, which make it easier for people to invest in Bitcoin through their regular brokerages (such as Fidelity or BlackRock) and has pulled in billions of new investment dollars. All those investors are apparently unconcerned that Bitcoin, more than 15 years after it started, still doesn’t do anything, isn’t a real currency, and remains a solution in search of a problem.
IRS launches tool for free online tax filing. Called DirectFile, the new system is being piloted in 12 states, and will allow taxpayers with simple returns to file their returns directly with the IRS for free. Of course, Intuit (maker of TurboTax) doesn’t like this much, and an Intuit spokesperson said that DirectFile “is not free tax preparation but a thinly veiled scheme that will cost billions of taxpayer dollars to pay for something already completely free of charge today.” Sure, my dude, sure.
International News, Science & Technology
Earthquake rattles Taiwan. The major quake killed at least 13 people, but this was less deadly than many previous Taiwan earthquakes of similar strength — a fact that experts attribute to disaster preparedness and improved building standards.
Terrorists attack Moscow concert hall. The brazen attack and subsequent fire killed 143 people. Russian President Vladimir Putin blamed Ukraine and the West (of course), but the attack was carried out by the Islamic State, who have long targeted Russia since losing much of their Syrian territory as a result of Russian military actions in 2015.
Congress approves foreign aid to Ukraine and Israel. Defanging the far right flank of his own party, House Speaker Mike Johnson pushed through an aid bill for Ukraine and Israel, relying mostly on Democratic votes. It remains to be seen whether he will face the same fate as his predecessor for his dallying with Democrats, but he may yet survive if Democrats decide he should. (Which party is in control of the House again?)
New “universal” vaccine approach proves effective. This new strategy could end the need for annual boosters targeting specific strains of a virus, such as influenza.
Arts & Culture, Sports, and All the Rest
Iowa player sets college scoring record. Caitlin Clark became the highest-scoring basketball player in NCAA Division I history. A few weeks later, her team’s game against LSU in the NCAA tournament drew the largest TV viewing audience ever for a womens basketball game (and more than all but one NBA game last season, notably.) That record held until a few games later, when the championship game drew 18.9 million viewers, more than the number who watched the mens final for the first time ever. She was recently drafted as the first overall pick in the WNBA draft by the Indiana Fever.
Oppenheimer wins big at the Oscars. Christopher Nolan’s epic about the Manhattan Project took home seven awards, including Best Picture, Best Director, and Best Actor. (And yes, it’s pronounced Cillian with a “k” apparently.)
Joe Lieberman dies at 82. The former Connecticut Senator was also Al Gore’s vice-presidential pick in the 2000 election.
Final Thoughts: Jobs & AI
You’ve likely heard about Jon Stewart’s return to The Daily Show, the platform that launched him into comedy stardom 25 years ago. (He’s not the only one, of course — The Daily Show also spawned the careers of Stephen Colbert, Steve Carell, John Oliver, Hasan Minhaj, Ronny Chieng, and many others.)
Famously liberal, Stewart has nonetheless taken some heat from his left flank for using his renewed platform to point out obvious facts, such as “President Biden is old.” (He IS old! So is Trump!) But he’s about to take some more serious heat from…me.
AI has been soaking up all the press ink (and venture capital) ever since ChatGPT was birthed, I suppose because the tool can write reasonably well, whereas most humans can’t. Scary stuff! Anyway, Stewart felt he should weight in, and did this segment a few weeks ago on AI and its potential threat to workers:
I love Jon to death, but this is a weak, lazy take. People have been predicting that technological change would decimate jobs for literally centuries. The printing press. The loom. The cotton gin. The sewing machine. The telephone. The harvester. The automobile. In more recent times, the computer. Software tools. Robotics in manufacturing. Autonomous vehicles. There are a hundred more examples, I'm sure.
And yet here we are, with essentially full employment. Somehow, 330M Americans have found something to work on, despite all that technological change.
This is not meant to minimize the potential negative impact to individuals, which is quite real. In all cases, these changes ARE disruptive. They can reshape or eliminate entire industries or classes of workers. This is challenging and life-changing for the people impacted. But to argue "progress is disruptive, therefore stop the progress" is neither smart nor viable. Notice that nobody who frets about AI "coming for our jobs" is offering to become a scribe, or a subsistence farmer, or a lamp lighter, or a human calculator, or a stableman, or a switchboard operator, or any number of other jobs that technological progress has eliminated.
We have no choice but to move forward. But we must also structure our governments and societies in a way to protect individuals from the worst impacts of these changes. (As a country, we do a poor job of this relative to our peers, unfortunately.)
No, this time will not be different. It is hubris to imagine that this new technology will be the first one to displace workers so dramatically that we'll all be walking around looking for something to do. New industries are born; new jobs and skills are needed. It has ever been thus, and so it will be with AI. And it's not coming "on Thursday", as Stewart glibly stated; AI has already been in development for decades, and it will be many more decades before much of the promise (and peril) can be realized. Don't buy the hype that these tech executives are selling.
Plus, Stewart’s argument distracts from the REAL threat of AI — and no, it isn’t the machines rising up against us. The real risk of AI is other humans using the technology for nefarious purposes: to scam people out of money; to cause reputational damage to others; to spread disinformation, influence elections, and undermine trust in institutions. AI is already being used for all those things, right now, as you read this.
Of course, AI also has tremendous promise across a range of industries (including real estate!). Large language models (LLMs) like ChatGPT are only the tip of the iceberg; AI can already do a lot more than produce writing in response to prompts, and its capabilities will only grow. Like any new technology, it’s up to us, as a society and through our governments and institutions, to realize the best of what AI can offer while mitigating the risks.
There are undoubtedly big things to be worried about with AI. But mass job displacement is not one of them.
Happy investing,
Eric
About the Author
Hi, I’m Eric! I used cash-flowing rental properties to leave my corporate career at age 39. I started Rental Income Advisors in 2020 to help other people achieve their own goals through real estate investing.
My blog focuses on learning & education for new investors, and I make numerous tools & resources available for free, including my industry-leading Rental Property Analyzer.
I also now serve as a coach to dozens of private clients starting their own journeys investing in rental properties, and have helped my clients buy millions of dollars (and counting) in real estate. To chat with me about coaching, schedule a free initial consultation.
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