Bright Investor

Host: Hey everyone, thanks for listening in on this episode of Invest Smart: Market Insights and Insurance Tips with Bright Investor. This morning I've got Donado Callahan on, and we're going to be highlighting his expertise in market analysis, investment strategy, and the critical role of insurance in investment decisions. Donado, I appreciate your joining this morning. Would you like to give a brief background on your history and Bright Investor and how we got here today?

Donado Callahan: Thank you so much for having me. A little bit about my background — I went to school for biology, which was a fun process that took me across the world to South Africa and West Montana. Until my senior year of college, I tried to get into real estate, so I spent my entire last year of college learning the business, getting into it, and finding the problem that comes with trying to invest in real estate in markets you don't live in. That basically kickstarted the question of how you find good information to invest in real estate with confidence anywhere in the US, even if it's a thousand miles away, and that started the journey of becoming Bright Investor.

I have put two years of Bright Investor buildup and development into play to create what we have now today — helping people spot the best markets and the best deals across the country, leveraging the power of market research. I use it in my day-to-day investing as I invest in both residential and commercial multifamily real estate. As of next week from when this recording is being launched, I'll close on my next 200-unit deal, bringing me up to about a $36 million portfolio — and I am 24 years old.

Host: Wow, that's a really interesting story and background and pretty unique. Donado, would you mind explaining the concept of market insights and its importance for investors?

Donado: Absolutely. One of the golden rules of real estate for a long time has been location, location, location. It's really easy to communicate when you ask someone why a single-family house in Southern California that used to be $50,000 back in the '70s is now $1.2 million today. The answer is because of Southern California — not because the person did the most rehab or the most repairs or has the most unique floor plan, but because of where they bought it.

The same can be said in reverse. If I tell you there's a three-bedroom, two-bath house at 10,000 square feet for only $10,000 right outside of Flint, Michigan, or Detroit, Michigan, or certain areas with issues around crime, lower income, or weak demographics — it doesn't matter how cheap or affordable the property is, you're going to have second thoughts before you invest there. When it comes to market insights, the power of it is saying: if you're going to make a choice to invest in real estate, how can you buy a property with the utmost confidence that the street, neighborhood, zip code, and city you're planting that seed in is going to grow into a successful investment — without having to worry about it or lose sleep at night?

Host: That's super interesting. So piggybacking on that — help us identify profitable investment opportunities and the key factors that drive market attractiveness.

Donado: Absolutely. I boil this down to a simple framework called RECAP. When looking at a market or a property, do a RECAP — which is an acronym that stands for Rent, Employment, Crime, Appreciation, and Population. These are five quick things to look at when evaluating a deal or a market to help know if it's going in the right direction for you.

For rents, ideally you want to get into an area where your rents are no more than a third of the local income. Too often people will buy a property and say, "I can rent this out for $1,500 when I'm done," and by the time they do the renovations and have poured thousands of dollars into the investment, the actual demographic of the folks living nearby doesn't have the income to support the rents that landlord needs in order to cash flow. So there's a mismatch between what the local community can demand and what the landlord needs. Checking that rents are going up over time — or at least not falling — is critical, because without cash flow month over month, you're going to be paying quite a large sum over the years just to keep that property.

Host: A wise man once told me you can't take market appreciation into the bank. It's a nice concept, but it's not cold hard cash. So that's really interesting. Now, we're in the insurance industry and insurance is a subject here — would you mind going a little bit more into how insurance is a cornerstone of smart investing?

Donado: Absolutely. So many places across the US right now are having issues with insurance, where properties either make sense or they don't largely based on insurance costs. With the replacement value of properties continuing to go higher and higher over time, it is absolutely critical to have the right level of insurance for yourself as an investor — to really safeguard against things like environmental risks if you're in a coastal area, fire-based risks, tenant-induced damage, or normal wear and tear. You have to be able to get into a property that's going to cash flow while still providing the level of insurance that's going to insulate you from those uncontrollables.

A lot of what I do on a day-to-day basis when I'm looking into an area is I'll get insurance comps, or I'll contact a group just like yours and ask what this insurance is going to cost me in this area. It's critical. I buy multifamily deals and the difference in insurance could be — for example, in one city it's $500 per unit for insurance costs, and in another market a few hundred miles away it can be $1,200 a month. On the residential side it can vary by hundreds of dollars per month as well.

So it's super important when you're getting into an area to understand what insurance costs are going to be and what level of coverage you're going to get, because that is a direct impact on your bottom line every single month that cannot be ignored. Having great partners like Steadily is crucial to be able to get into a deal, get that insurance quote, and know that your property is protected, your bottom line is protected, and you're not flying blind.

Host: Yeah, the end goal is we want to get quality coverage at a competitive price point. You're hitting the nail on the head as far as insurance being a form of risk management — a safeguard in that aspect. Donado, would you mind going a little more into how you analyze market trends and identify high-potential investment areas?

Donado: Absolutely. On one side, Bright Investor's newest version — as of the middle of April when we're recording this — we've just released a new market finder tool. You can simply state, "Show me the top markets in Georgia for appreciation," and it'll tell you exactly which markets are doing the best for appreciation. You can just find markets that way.

Beyond that, if you don't have access to Bright Investor yet, I'll use the RECAP framework. I'm going to look for areas where rents are less than one-third of the local income. Then I'll look at employment and get an idea of the job market. My rule of thumb for the job market is to see 10% growth over a 10-year period, and specifically I want to see jobs coming to a city in industries like education, healthcare, government, and professional services — because they are recession-resistant and less susceptible to volatility that other sectors like oil and gas can face.

Then I'll look at crime to see what the prevalence of violent and property crime is around a particular address. Bright Investor offers a crime heat map around every property so you have that on a street-by-street level. Then I'll look at appreciation to find not just cities, but zip codes within cities that have been appreciating at least 2% per year, and I avoid areas that have been losing value for two or more years — because I really don't want to buy a property for $200,000 in an area that's losing $10,000 to $20,000 a year in value.

Lastly, I'll look at population as my final piece of the RECAP review. My rule of thumb is 10% growth over 10 years. At the end of the day, real estate is not a product business — it's a service business. As landlords providing rentals, we need to provide services to our customers. The more customers there are in an area — the higher the population growth — the more demand for our service, the higher rents we can charge, the less vacancy, and overall a more successful investment. So I want to find areas with a lot of customers, and I put that all together to do my market RECAP.

Host: So Bright Investor brings in the economic, demographic, and industry trends that help point to profitable investment opportunity areas — if I'm understanding correctly?

Donado: Absolutely. With Bright Investor's market comparison tool, you click a button and it gives you a leaderboard — the top markets in every state across the country. Once you find one you're interested in, you can look at the entire city and break it apart piece by piece to find the best areas within that city. And we just launched MLS access and off-market property access, so once you find an area you're interested in, you can actually find deals for sale, estimate the rents and cash flow on a monthly basis, and through partnerships get instant insurance quotes on what that property is going to look like. You can take the whole process from "I have no idea where I want to invest" to having a locked-in city, zip code, street, and multiple cash-flowing deals you can start calling on in minutes.

Host: That's awesome. So transitioning a bit — would you do a deeper dive into how insurance considerations influence investment decisions, and how leveraging insurance insights can enhance investment strategies and mitigate risks? Like, how could insurance play a role in whether you purchase a property or invest in a certain area — and once you do purchase, what are some ways you can mitigate risk?

Donado: Absolutely. A good example is comparing a market like San Antonio versus Houston, Texas. Houston over the last maybe three years has seen some pretty significant environmental issues — flooding and hurricanes — and that has had a significant impact on insurance premium markets. Where previously I might have looked at areas along the coast or the south and eastern portions of Houston to invest, now it becomes very difficult to pencil anything that's not at least on the northern part of Houston, if not in more inland markets like San Antonio.

So I will look at insurance premiums — not just the current monthly rate, but get an idea of what insurance has been over the past few years and whether rates and quotes are increasing or decreasing in certain markets. That is a huge component of choosing where to invest in real estate. You can be certain of a couple of things in life: death and taxes are the two most famous examples, but you can also be sure that insurance over time will be going up. That is a crucial number you have to factor in — and not just the number you're paying today, but knowing what the company you're working with is going to do when you have to file a claim, what kind of service you'll get, and what you can expect from that partnership.

It's really impossible to buy a property today in the Sun Belt region of the United States without completely dialing in what your insurance costs are going to be. You need a way to get that information fast, reliably, and from a provider that can actually close the policy and work with you as an investor. Without it you're flying blind. And at least in my world, when you're raising money from investors, it's not an option to not have great insurance. You have to match up a great property with a great part of town with an insurance package you can afford that provides the coverage you need.

Host: Absolutely — you hit the nail on the head. It's so important these days. We've seen in some markets 50% year-over-year increases in premium prices, and that's just the nature of extreme natural weather events happening across the country. Insurance is definitely more than just a regular line item on an investment strategy now — it's something you always want to evaluate as tightly as possible, including potential future increases. Could you share some resources and tools that can aid investors in their market analysis and understanding of insurance implications?

Donado: Sure. First, I would highly recommend going to folks like Steadily. If you have a property you're looking to invest in, you guys have instant widgets and estimate calculators which can be super useful to get an idea of — say, "This is my property in Des Moines, Iowa, what is my monthly premium going to be to cover this asset? What kind of replacement cost and coverages am I looking at?" So highly recommend going to folks like Steadily and other resources that can help provide insurance estimates before you close on a property — which is crucial.

On the market analysis side, there are a lot of websites you can go to, but my favorite is of course Bright Investor — it's the reason I built it. I'm trying to build something that's not just the best option but truly the only option, because you can get things on our platform that you can't get anywhere else. When you pair top-level market research with the deals you can find, and then bring in partners like Steadily who have the insurance information, it makes the whole process super actionable. Here's a deal I want, here's the policy I want — two clicks of a button, good to go. That's how you can quickly compare which areas and properties are going to work best for you without spending all the time calling different providers or reading through all the different policies and documentation that really slows down your acquisition process.

Host: So aside from Bright Investor, which we know is a super useful tool — what would you say are some essential readings, platforms, or tools for aspiring investors?

Donado: First, if they're not on the BiggerPockets community, they should be. It is too much free, valuable education to leave on the table — you can learn how to do real estate investing and get introduced to a lot of strategies you need to be leveraging. Second, there are a variety of paid mentorship or coaching programs that I got started in, and a lot of the most successful folks I know in real estate went through at least some type of training program — whether through BiggerPockets boot camps or others in the space that specialize in specific niches of real estate. Having something that can expedite your journey can be really useful.

Then lastly, read a ton of books. There's Jay Scott's book on estimating rehab values, and for running a real estate business I highly recommend the book Traction. Getting a little philosophical — I'd really recommend people read Simon Sinek's Start With Why and Sullivan's Who Not How, because a lot of folks getting into real estate can get really caught up in the numbers — what's my mortgage going to be, what's my insurance going to be, what are my taxes, what's my cash flow — and I really urge people to first ask: why are you even getting into this industry? What's the purpose of it? Is it to build a flipping business? Or is it to have money coming in passively through rentals? Define what your ideal end state is and then work backwards to figure out what kind of business you want to build.

That's the exact reason I went from one four-family house hack directly to a 176-unit building as my second deal. I thought — I know what my end goal is, let me just skip the middle stuff and go right to the big stuff, because that was what worked for me. Other people, through no fault of their own, will take 15 to 20 years to work through that process to arrive at the same destination because maybe they got into the business to start making money without as much long-term foresight on what they're really trying to build. Books like Traction, Start With Why, and Who Not How are great for starting that conversation, and when you leverage mentorship groups and free education on BiggerPockets alongside partners like Steadily to put things into action — that's how you can really start executing on these plans and making real estate happen.

Host: Could you discuss some common mistakes investors make in market analysis and insurance planning?

Donado: Sure. First, the golden rule of real estate is location, location, location for a reason. Where you buy matters almost as much — if not more — than what you're buying, and it can impact you both really well and really negatively if you buy blind. Second, a great way to evaluate a property or a market is to use the RECAP framework — check the local rents, employment, crime, appreciation, and population before you invest. Using platforms like Steadily and other insurance avenues to get your policies written is a great way to make sure you're getting into a property with lower risk before you go to the closing table.

And lastly, if you're going to get into real estate investing, read books that talk about why you're doing this whole process before you start looking into how to do it — so that you know you're actually on the right road to where you're trying to go in your life and career. Otherwise, you might find that in 10 or 15 years you've built an amazing path to a destination you didn't want to be at. Put all that together and that's how you're going to be able to find the right markets, invest in the right deals, be protected with the right insurance, and build something into a life that you actually want to have.

Host: Amazing stuff, Donado. I really appreciate your time this morning. Everyone should go check out Bright Investor — we're going to put some information down below so you can find his site. I want to thank you again for your invaluable insights and contributions on this call, and I want to remind everybody that you can find more information, resources, and episodes at steadily.com. Thanks for listening this morning.

Donado: Thanks for having me.