BiggerPockets Real Estate Podcast - 456: 126 Multi-Family Units On a Military Salary with Erika Sleger

Episode Date: April 1, 2021

Anything over 100 units tends to scare many investors, especially rookie investors. How do you even get to 100 units when it’s already challenging enough to get one? That answer is simple: stack them slowly over time. That’s exactly what today’s guest, Erika Sleger, did. Erika heard about house hacking from a lecture in college, so once she graduated she decided to buy a fourplex, live in one unit, and rent out the others. She learnt some valuable skills from that first fourplex and later sold it for a nice profit, 1031 exchanged it into an 18 unit, and started collecting rent. From there, she used her equity on the 18 unit to buy a 64 unit. Another 16 units here, some more units there, and before she knew it Erika had over 120 rental units. She acquired all of these properties through 1031 exchanges and pulling cash out via refinances for down payments. Managing over 100 units isn’t easy, it took Erika a while to find management that worked, and she was still managing her managers. Even with the best due diligence, Erika talks through the challenges of filling and managing so many units. That’s why Erika sold her multifamily properties and moved her money into commercial real estate. Now she owns “amazon-proof” commercial spaces for coffee shops, a daycare center, and even a car maintenance shop. These leases are triple net, and give her the flexibility to move wherever she wants in the world, without having to over-manage a property manager. This is what “the stack” done correctly looks like! In This Episode We Cover: House hacking to secure your first rental property Using 1031 exchanges to acquire more properties with no capital gains taxes Buying LARGE multifamily properties and setting up management The importance of due diligence when buying multifamily and commercial Triple net leases and the benefits of commercial buildings And SO much more! Links from the Show BiggerPockets Forums Tony Robbins Walgreens CVS Starbucks Amazon BiggerPockets Podcast 253: Recession-Resistant Investing & the Benefits of Buying Shopping Centers with David Puchi BiggerPockets Podcast 363: How to Work (Way) Less but Accomplish (Way) More in 2020 with Michael Hyatt Check the full show notes here: http://biggerpockets.com/show456 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 456. I wasn't looking for a job. I'm looking for an investment. I have a full-time job. And so this was just supposed to be something that I was investing in. And it got to be too much trying to figure out were these legitimate expenses. Because expenses kept going up. And I didn't know what they were for.

A lot of them were really vague in the program. And I just didn't want to be calling them constantly, especially out of the last several years. I've lived overseas, you know, a decent amount of it. And so I was just, since I didn't want to keep doing that, I wanted something that I didn't have to have management on. And so even the returns on commercial property is a little bit lower, it was the right thing for me. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in

the right place. Stay tuned and be sure to join the millions of others who have been to benefited from biggerpockets.com. Your home for real estate investing online. What's going on, everyone? It's Brendan Turner, host of the Bigger Pockets podcast, here with my co-host. One final time, Mr. David, the shredder green. What's up, man? Sad day today, huh? Well, it's sad from one perspective, but it's really happy for another. You know, they say that one door's got to close before another can open.

Yeah, I say, I hear your, so if those don't know, David is stepping down from the podcast to become a full-time snowboarder there in California. And I'm also stepping down from the podcast to be a full-time sea turtle rescuer. It's a volunteer position, but I'm pretty excited about it. Can't even say that with a straight face. Well, I mean, when you've got the level of talent. When you got this talent, you got to do it. It really makes the decision for you.

None of that's true, of course, people. Somebody just had a heart attack. I can leave it? No, no. Today, if you're listening to this live anyway, today's April 1st that this show comes out. That means it's April Fool. I've never actually made an April Fool's joke. I don't think of my entire life.

So I'm pretty bad at it. But no, we're not going anywhere. We're still here, sadly. And today's show is not a joke. It is legit and it's exciting. We're going to learn from Erica today. So Erica Slegger, amazing story of investing in real estate while working a full-time job in the military, actually, the Air Force.

And they're going to learn how she was able to do that, build up a portfolio, going from residential into some commercial stuff. Really inspiring stuff, you're going to love this. So hang tight for all that. Before we get into that, let's get to today's quiz. Tip. Today's quick tip is brought to you by David Green because I didn't prepare one. David, what do you got? That's okay. That's why I'm here. Not just because I'm great at snowboarding. Oh, I can talk about my latte maker if you wanted. No, I did to get a new latte maker.

Please not. It's a really good one. It makes lattes. Anyway, go ahead. Today's quick tip is use what you got. So today's guest was in the military and she built an incredibly impressive portfolio using the resources that she had at her disposal. As Tony Robbins says, you don't lack resources. You lacked resourceful nest. So as you listen today's show, try to apply what you're hearing to your life and ask yourself how you could do what Erica did. Look at David Green bringing in the Tony Robbins quotes. That's impressive. Well, hey, we should get Tony on the podcast sometime.

If anybody has a Tony Robbins connection. But who needs Tony Robbins when you have Erica Sliger? So Erica, we're going to bring this show to you guys right now. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand new construction homes, 10% below market value, and the best markets across the country, without making real estate your second job? That's exactly what rent-to-retirement does.

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of management for free. Because if you're going to hire a property manager, hire one that manages your investment like an investment. So David, use what you got green. You ready for this thing? Is that better than snowboarding guy or whatever I said earlier? Well, the joke is I'm a horrible snowboarder, maybe one of the worst people. I don't know if I can call myself a snowboarder. You're not as bad as me.

You're not as bad as me, I don't think. Have you snowboarded before? Three times. I broke my arm one of them. So I got like a one-third failure rate. That's the problem. All right. Well, let's hear about someone who doesn't suck at life.

Let's bring an Erica. All right, Erica. Welcome to the Bigger Pockets podcast. Good to have you here. Thank you. Thanks for having me. Yeah. So let's dive into your story. I know you're in the military still, right? So how did you get into real estate? Why real estate? What was kind of the spark to that journey? Yeah. So I initially joined the Guard when I was in high school to pay for, you know, some college and whatnot. And when I decided to go to law school. And one of the classes I was able to take in law school was about real estate. And our professor brought in different people. And one of our speakers, said that they bought a duplex, they rented out half, and they lived in the other half, and it paid for their whole mortgage. And I was like, that's genius. And so I graduated from law

school shortly thereafter and decided that I was going to buy something that I could do that as a brand new attorney. And so I bought a fourplex. Within a couple weeks, days after buying this fourplex, my guard unit, I was selling the guard at that time, got deployed. And so I ended up leaving really short notice, didn't even get to cash the check for the deposits from my, you know, the seller. And so I was gone about nine, ten months, got back and then tried to cash the check because I found it when I got home. And the bank was like, nope. So I had to go back, try and get the deposits from the seller again. But then I moved into that fourplex, and it was great. I, you know, I had my, well, great. It was, it paid the mortgage and then some, you know.

Financially, it was great. Yeah. Yeah. Yeah, I got you. I've been there. with your tenants is not great. Lots of different stories there. And then after that, I talked to both my in-laws and my parents into buying some fourplexes themselves. And so at one point, I was managing 16 units. And then the day that I turned over management to a different party was one of the best days of my life. Okay, I want to get there. But first, I want to hear a little bit more about, like, this very first deal. I'm wondering, like, was that a VA loan? Is that what you did for that first one? This was in 2003. So, of course, prices are cheaper. But also my salary, you know, you think maybe an attorney would make some money. I was making a quarter million dollars a year. Come on. Right. I wish. I was making. It was, it was very low. And then, but so I borrowed $15,000 for my grandma. And I bought the fourplex for $88,000. Those are the good old days. Yes, I know. I know. And then, yeah, I moved into the one unit and rented out the rest. And that's, and that's a good old days. And that's a good old days. And that. And that's a good old days. And that. And that. And that. And that. And I was. And I was. And,

I was actually still single at that. It got married the next year. And then the next year we bought an 18-plex once I had my husband's paycheck to add. So I want to stick on this first property because even though it was, you know, almost 20 years ago that you bought that first one, the principal applies still today. We talk a lot about a house hacking, right? When you live with your tenants and you kind of, you know, laughed about that and I laughed about it because I've, you know, we've all been there. And I know, David, you've done it too. What worked and what didn't work when you're living with a tenant and you're trying to do the house hacking thing?

I probably did everything wrong. I mean, in hindsight, I probably wouldn't let him know that I owned it. I also, you know, it made me feel bad with the collecting money from tenants made me feel bad, especially, you know, some of them had trouble making the rent and with kids and whatnot. So in hindsight, I probably would just got in the PO box, had a mail stuff. Some of them were in the military. There was a one above me. I lived in the bottom unit, and one of them, one day I was sitting there and water, started dripping down. And so I went upstairs, knocked on the door a few times, no answer. Eventually, I let myself in with the key and discovered water everywhere. The tenant had deployed and shut off his heat in North Dakota in the winter. And so the pipes burst. And so I was like trying to figure out what was going on and opened one of the closet, one of the closets where the pipes were. And there was like a marijuana growing operation there. And so I had to report that. You know, because he was in the military and there was a lot of damage in the apartment. And so anyway, then once I joined the, like full-time military active duty and I was stationed

at that base, he was one of the first court marshals that I participated in. So that was kind of a neat full circle. Yeah, there's a lot there. And you learn these things like when your house hacking. Like, again, we've all been through it with the tenant thing. And again, like, I love the idea of not telling your tenants that you're the owner of being, you know, just another tenant that lives there or just the manager or the resident manager, you can do to kind of like make sure that somebody else is the one that's the bad guy I guess in

those cases so well why don't we jump in real quickly about why that is a good idea it's not just because you don't want to be the bad guy because some people don't mind playing that role some people actually excel at that role you love being the bad guy oh man like all the time i do that for brand just give me your phone let me talk to this person yeah as weird as is i'd rather do that than get all like the emotional touchy-feely stuff that makes me more uncomfortable but the point is what brand and i have been pounding on is the concept of leverage. Everything in life is something that you choose to do or you could hire, train, find someone and either pay them or mentor them or give them some form of benefit to why they would do this for you. And if you don't like collecting money, if you don't

like being, for lack of better phrase, the bad guy, find somebody else who wants to and listen to that feeling in your gut, like we say, you know, go with what goes light. So like there's nothing wrong with Eric is saying, I don't like that part of the job. That's actually your compass that's guiding you to leverage that to somebody else. Yeah, that's a really good point. So, Erica, what came next? I mean, you bought that fourplex. You lived in it when overseas, came back. I'm assuming it's kind of stabilized it. Did you keep that one then? Yeah, I kept that a long time. And that was in 2003. And then in 2005, we bought an 18plex in small town, North Dakota. And that one, I actually just sold a couple months ago. So I kept that one long term also.

I sold the fourplex in 2015, and that was after oil had hit North Dakota. So it had, you know, gone up in value. And then I did 1031 with that money. What did you sell it? What did you sell it for? You bought it for 858,000. And I sold it for 258. Oh, all right.

There's some other profit there. And you 1031. For those who don't know what a 1031 exchange is, can you explain that? Yeah, you take the money from your sale. And as long as you identify before the closing of what you're selling, as long as you identify that you're going to do that with the money, you put the money into a qualified intermediary. They hold it. You never actually get the money in your bank account. And then you identify a property that you want to buy within 45 days, close within six months. And then you don't have to pay the tax man or the depreciation recapture. So it's a good deal as long as you want to keep investing. At some point, the government wants this money back, unless, of course, you die and then it goes to your kids and they don't have to pay it back either. So currently that's how it is. But it's such a powerful technique, though, because like, let's just say you made $200,000 in profit that you're going to dump into the next deal. But oh, sorry, you owe the government half that in taxes. And now you can only invest $100 in the next deal. So if you're putting 20% down, you can buy a $500,000 property. But because you're able to keep that full, let's say, $200,000, now you can buy a million dollar property. You can buy twice as much almost because you're using the government's money to go buy more. So now you get all the cash. benefits of that million dollar versus the 500,000, you get all the tax benefits of the million

dollar, and then you do it again, and you do it again. You're basically using the government's money as a partner to invest with you. And the government's just like, hey, it's okay. Hang on my money for a little longer, invest in the next deal. That's why I think they do that. I think they do it because the government's like, well, you've already been successful with the money now. You can probably grow it faster than we can grow it. So just go and dump it in there and pay us later. It's a cool strategy. Actually, it's really smart. And if anybody wonders why the government does that, just ask yourself, when the government runs things, do you have a good experience at the DMV. Yeah, they've realized they would rather have investors who have proven

themselves good investing their money rather than government bureaucrats invest in their money. All right. So how did you go from that fourplex to an 18 unit? That's a pretty big jump, bigger than most people would probably do. What was the kind of mindset that went into that? It was for sale, I guess. In small town, North Dakota, at least at the time, and this is when I say small town, I'm talking like 2,000 people. And it was an 18plex. It was for sale, from a real estate investment, you know, fund, and they were selling it to invest in, like, shopping malls and whatnot. And so the 18plex, I paid $215,000 for, which at that point, you know, between, it seemed like a lot of money at the time, but, you know, in hindsight, it wasn't,

but we had, we got that and it brought in a lot of money. For a long time, we were like, this is like a, you know, a golden goose that just kept sending us money. But then, you know, we paid it off. And then we started paying taxes on something paid off, you know, paid off. And that was something that I hadn't realized, I guess, was the power of leverage. Because once we paid it off, yeah, it was great getting those monthly checks and not sending out anything to the mortgage company. But we got hit during tax time. So then we refinanced and pulled some money out. Okay.

Yeah, that makes a lot of sense. I know, like, there's a debate in the investment community of should you pay off your properties or not. And that's one of them. When you pay them off, you don't get this many tax benefits, which means you pay a lot more money. And so from a financial standpoint, it usually doesn't make sense to pay off the properties, but from an emotional standpoint, some people really like it. And it works for them. Yeah, when we pulled that money out, that's what we used in part for when we bought in 2014.

We bought 64 units. Wow. In one shot, like one apartment building? Yes. Yeah, it was four 16 plexes. Wow. Okay. So let's walk through that one.

How did you find that thing? How'd you put together that deal? So we decided once that we wanted to, like, I enjoy this. My husband's totally hands off. He doesn't, in fact, he's never seen, he never saw any of our properties, except the, so. And the, the ones that we just sold, yeah, all the 126 multifamilies that we just sold, he never saw any of them. And so, but I, I enjoy it. And so I called around. I didn't have a market that I really was biased towards. So I just called around. And honestly, I ended up investing in Winston's. in Salem because that's where I found a realtor that was really great. And so he, you know, he returned my calls. He was, he took it seriously. And so I ended up investing there. And it was good. It's been, it's been good. I still have several properties there. So this is a really good topic. I want to, I want to make sure we dig on a little bit is when you're trying to find a, find a market to invest in. And like a lot of people are just stuck with brand, like they have no idea even where to

look. Like, do I go to North Carolina? Do I go to Florida? Do I buy in Ohio? Like, What do I do I do? And you mentioned, and I love that you actually said that, is you just found a realtor there. Like that was the main driver. It wasn't like you were looking at the data going, oh, it looks like population trends are moving in this direction. And maybe you did some research there. But it goes to David's point in long distance real estate investing about having your team is like the most important piece of where you invest or at least one of the, it's probably the most important part. David, would you agree with that?

Yeah, absolutely. The team, and I'm sure Erica would support this concept. It determines whether you're successful or you're not successful, whether the mission gets done or the mission doesn't get done. The team is pretty much everything. And when I wrote the book, what I noticed is the question everyone asks is, where do I invest? It's a mindset that comes from stock trading. Where can I buy low and sell high? That's how they're looking at this thing.

But when you're buying a stock, there's already a company in place that's got a team of people that are either doing a good job or they're not doing a good job. You've got to build that team when you're investing. So while the location does matter, and Erica, I want to ask you what your thoughts are on buying where you are or buying in a place you think makes more sense. There's another layer of complexity to this, which is how you build the team or how you operate this business that you're buying. Yeah, the hardest part, other than in North Dakota, that was the only time I've ever lived near my properties. The hardest part, in my opinion, is finding management. It's really, really hard to get good management. And once you get good management, it seems to slip.

And that's why I ended up selling all the multifamilies. I had good management. And I, you know, they were good. But I just didn't have the time to manage the management. And, you know, they use these huge programs. And I would try and go in and, you know, see what the expenses were. But when you have 126 units, I wasn't looking for a job. I'm looking for an investment.

You know, I have a full-time job. And so this was just supposed to be something that, I was investing in and it got to be too much trying to figure out, you know, were these legitimate expenses because expenses kept going up and I didn't know what they were for. A lot of them were really vague in the program. And I just didn't want to be calling them constantly, especially out of the last several years, you know, I've lived overseas, you know, a decent amount of it. And so I was just, since I didn't want to keep doing that, I wanted something that I didn't

have to have management on. And so even the returns on commercial property is a little bit lower. it was the right thing for me. Yeah, that makes a lot of sense. So let's go into that a little bit deeper into the, you said 126 units. Is that what you were up to? Yes. The big apartment complex, how did you find it?

How did you finance it? Like the 60-something unit that you got there? What was that about? The initial 64 unit was just, when we had the money, I just was like I said, calling around to different, honestly, states. Like I was calling like realtors in California. And this was this one particular realtor called me back. and so that's where I ended up buying. It was also driving distance. We were stationed in the D.C. area.

And so I could drive down and look at it, which I did, you know, several times. And then after we bought it, it was, I mean, there's a little bit of foolishness to when you, when you buy something big, there's just like that leap of faith. But a lot of it is just being like, all right, I'm just going to do it and jump in. And there's a lot of things that I missed then that I would know now. I didn't, one thing with, I didn't really, really, really. realize that a lot of owners, when they're going to sell, they prep for a couple of years, and they quit doing capital improvements, and they lower the expenses a lot, and they will fill the empty apartments with whoever, just to try and get the income up, because then with the cap rate, you know, you pay more. I didn't realize that. And so, yeah, I bought it, and then, you know, I start realizing, okay, this roof, even though it passed the inspection, it's going to need a new roof in a couple years and these are $50,000 roofs. And so that was one thing I wish I would have been smarter on. You know, at least, I always think at least I'm in it to make the mistakes better than sitting

on the sidelines and not doing anything. And so I've learned a lot, but it's been great. When people are trying to sell a property, what you're getting that there, and correct me if I, if I get any of this wrong, what you're saying. When people are trying to sell a property, especially a multifamily or commercial property, they want the profit, like the net operating income to be as high as possible. They want to make that property look really, really good from a financial standpoint because the value of a property is based on how much profit it makes and when you get into that larger deals. So as a result, they stop working on a lot of the stuff, the regular repairs of maintenance for several years so they can keep the numbers artificially low. It's very

common. So because of that, you may get a lot of deferred maintenance. That's what you're saying, right? Yes. Yeah. So definitely something if you're getting into the larger deals, be aware, like, what is the seller not doing? Do you have any recommendations for how to, how to discover that? Like, how do you, how do you know what a good, if they're cutting back there? How do you know if they're trimming their expenses and not doing a good job? The two things I would look at is how long the tenants have been there. If you see a bunch of tenants that were just installed right before it went on the market,

they're probably going to be evicted here shortly and it's going to be your problem. And the other thing is to check when things were repaired. I mean, if visually look at it, you know, you can see if the parking lot has potholes and whatnot. But how long, how long ago was the roast replaced and the railings replaced and the flooring and all those things? You can see a lot of that if you just have your eyes open. But like, I was just really excited. I was like, oh, my gosh, 64 units.

This is amazing. And so it's like my, you know, I had blinders on a lot of that stuff that I was like, oh, that's, I can totally overcome that. And, you know, and then pretty soon the bills start coming in for those things. What was the kind of the end result of that deal then? I mean, do you still own it today? You sell that thing eventually? So I bought that in 2014. The next year in 2015, I bought an additional 16plex in that unit.

So I had 80 units in that little, you know, complex. And then I also bought 46 units across town. And then I just sold all of them as a package in August and did another 1031. How are you able to finance all these properties on a military salary? I mean, what you were saving up for it? Is there any creative strategies in there? Yeah. So we got, you know, of course, we sold that fourplex.

So we got some money out of that. And then the 18plex, we refinanced that a couple times and pulled money out. I actually just sold that one for $4.50 a couple months ago. So we pulled money out of that. And then, you know, with the military is, you know, you keep going up and rank. And then you so you get, and then longer you get paid for longevity too. And so at this point, you know, my husband, I have both been in. I've been in close to 20.

He's been in 20. And so, you know, not at this point we make a salary, decent salary. But, you know, of course, with four kids, we also pay a lot. Yes, you do. Four kids. Well, so here's what I love about your story is it illustrates something powerful. And that is I teach us on Bigger Pockets webinars a lot is the concept of a stack. When people getting started, like, they see somebody with like 100 units and they're like,

oh, how could I ever buy 100 units? That would take me 100 years, right, if I bought one a year. But the idea is you started with that fourplex. And you bought like the 18 unit, right? It was outside your comfort zone, but not in the realm of impossibility. It was just like, oh, that's a stretch. And then you took profit you made from the early deals and dumped it into bigger deals later. You buy the 60 unit.

And then over time, you make more money and you keep on some type of budget, hopefully in life, so that you have extra cash to invest. So, like, people, I think oftentimes look at the idea of a portfolio, like 100 and some units and think that would be impossible. I'll never be able to have the money to do that. But your story perfectly illustrates, like, over time, like, you're going to be fine. You'll figure out as you go, as long as you invest outside your comfort zone, which is exactly what I feel like you've been doing is investing outside your comfort zone.

So that's awesome. Yeah, the whole time has been outside my comfort zone. And same with the most recent stuff I bought is something totally different, you know, once I got out of the multifamilies. What you're basically getting at was when a seller provides information, you don't just take it at face value when you're buying a property. And I'm going to let you explain to us some of the other things that happens. What I've noticed is when people first get into multifamily investing, they really get

excited by the spreadsheets and the numbers and the math behind them because they're powerful, but it's easy to assume that what you're looking at is accurate. This is something Annie Duke talked about when we interviewed her, that we tend to read something and just take it at face value and then move forward. And so our analysis is based off of bad facts. Thinking and Betts is the book title, by the way. Thank you. In Annie Duke's book, Thinking and Betts. And so our analysis is based on bad information, which means if you had a foundation, then you build on it as you're analyzing this property for foundation was bad, the whole thing ends up being bad. And I wanted to ask you, What are some other things that you found that investors have to be very careful that they analyze correctly and they don't take the seller's words for it?

Because like Brandon said, they're going to hype those numbers up to make them look better that people can avoid some mistakes that would really hurt them. So you have to try and look a little bit in the future, too. Is your insurance going to be the same as the person who's selling it? Is your taxes, you know, the property taxes can go up? Because once you get into these bigger properties, you're looking at, you know, $30,000 in property taxes. And if they sold it to you for a lot more than what they had into it, it might jump up. Also, you know, due diligence was kind of just a word before. But once you dig into it, you know, I had, like I said, I have really great realtor.

And so he would do things like send me. He would even ask for like copies of the seller's bank accounts to show the deposits instead of just taking their word for it on some things. And so just verify. I was surprised. I mean, in the military, of course, we try, you know, lying is like that's like the worst of all things. And so I was surprised at how easy some people will stretch the truth on that stuff. Well, I feel like that's really the game.

When you're analyzing multifamily properties that the people I know, like Andrew Cushman's a guy I invest with and he's taught me a lot, is you're there telling you something and then you're investigating it to find out if it's true. And that is literally what due diligence is. And I just want to highlight that because many people would just... I never thought of that. It's exactly it is. You just try to find out how much they're lying. Like, that's what due diligence is.

It's like a lie detector. Yeah, it's like a polygraph that you're running somebody through and like you're looking up evidence to support it. But Erica, you said a great thing. I don't want it to get overlooked. It doesn't matter what the lease says the person's paying. That's just what they're legally obligated to pay. If they haven't paid it for six months, you still bought yourself a problem.

Look for the deposits. Show where the landlord deposited the rent into the account. And you can see this person's been kind of... up to speed because it's very easy to grab somebody, throw them in there. Now they show that there's no vacancy. They're NOI increases. They made the property worth more. The multiple is different when you're figuring out the value and they just made this thing look great and you buy it and you basically are like taken over this poison pill that somebody else had swallowed. Exactly. Their problems become your problems. So let's dig into what came next then. So you said you

sold all these properties in a big bulk. Was that to one person or you just sell them in? No, it was a private equity firm that bought them all. I started probably about a couple years ago getting phone calls, multiple phone calls a week about trying to sell people that wanted to buy these. And so I hadn't paid that much attention because I was living in Germany and then I got back to the U.S. and then I deployed. And so I, you know, I just kind of blew them all off. But then I finally just got kind of fed up with managing managers.

You know, I just, I knew that I wasn't giving it the attention that it deserved. I wasn't doing that good job at it. A lot of things were just escaping my notice because, like I said, this was just an investment to me, not a job. And so when I decided to sell, I was surprised at how much they said, you know, the agent said that I could sell them for. And so we did a 1031 and then bought a different type, a different asset class. What did you end up buying?

I bought commercial. I wanted what they call, you know, mailbox money. So I bought two Starbucks, a daycare and a Quicklube and a medical office building. You just like buy a Starbucks, like the building, right? Yeah, yeah. Why that asset class? Why commercial real estate like that? What brought that on?

So the whole idea was that I could just manage it myself because once you get it, you know, purchased and you get your mortgage auto paid, you get your rent is, you know, auto paid into your account. And so the whole idea is that you don't have, you know, you know, you're. expenses because in triple net the tenants pay your insurance and your taxes and everything. And so the whole idea was that it would be truly, truly hands off. Like my negligent management, you know, like looking at the monthly spreadsheets and whatnot, that would be fine because it's really just automated. Yeah. And I'm assuming you don't have a property, you don't need a property manager at that point then

because it's. Yeah. I don't have a property managed or ironically right after I bought one of the Starbucks in Arkansas where they got the snowstorm. And so I was getting phone calls about, you know, the parking lot, snow in the parking lot. And nobody knows what to do with snow in Arkansas. They're like, we don't have plows. So I've actually had more phone calls about maintenance than I ever did with multifamilies. But I think it was just kind of a freak thing. So you mentioned triple net leases. Can you describe for the audience what that is? Yeah. So when you buy these commercial properties,

you're almost buying the lease, really, instead of the building. Because the building, itself wouldn't go nearly for as much as it does once you have a long-term lease. And so the thing I found out is the longer the lease and the better the credit of the tenant. So if it's like a nationally traded tenant, like let's say Walgreens or CVS or Starbucks or one of those, you get more favorable financing terms. The banks will, you know, a lot of times fight over financing those for you. and you don't have to worry about it. But so, but then, of course, your return goes down too because it's a lot more safe.

If you get maybe a franchise, that will, you'll get a better return, but it's a little bit more risky and your financing won't be quite as good. So it's just, it's a tradeoff of what you're comfortable with. That is such a great definition that you just gave. I love what you said. You are buying the lease, not the building. Because I've often looked at what people pay for commercial buildings and you could build a new one for a a whole lot cheaper than what people are paying. It's you're buying the income stream, which is the lease.

Oh, that's so good. Because that opens your due diligence up into how long is the lease for? Is it at below market rent and it could raise? How stable is this tenant? Is this a tenant that could go bankrupt in a couple months? Or is this someone who's been here for 15 years? Those are such good points. Yeah, it's, it's kind of scary because these are nationally sold too.

They're not on a local level. And so you can buy anywhere. And that is exactly how the, you know, they're advertised. So it's a little bit scary not knowing exactly where they're at when you're buying them. But the, you know, I guess the benefit was the financing was much easier, even with COVID, which that also threw a wrench into things because daycares, you know, daycares all of a sudden were selling at a bit of a discount because who knows, are we all going to go back to work and, you know, and need them again or are they all going to go under?

And so I took a risk on a daycare, but then also got some things that are doing pretty well with COVID. To kind of sum up your story as we've gotten so far, you started small by like this little, this fourplex. I mean, basically it's just house hacking a fourplex. You then used like the next level. You supercharged like an 18 unit, bought a 60-some unit, a bunch of more units. Sold all of that, like over this 20-year period or whatever, this 15-year period, took all the profits that you make over time, dumped it into real estate that's way more passive and long term, way more just easy to manage. And you have this big portfolio now of these commercial properties that are fairly easy to manage.

That sounds like a good summary of like your career. It is. Yep. Yeah. It is a perfect picture of what like how awesome real estate is because it just gets better and better and better and it compounds upon itself. And I'm not saying it's like there's never any problems when you own the larger properties. But at this phase of your life now, you're probably not looking to deal with tenants who are growing weed in their in their closet. and you're dealing with the water leak.

Like, you're past that now. That's a young person's game. Well, Brandon, you're making a good point here too, because a lot of the reasons people either don't start in real estate, they fail, give up, or never get started, or they never continue to go through, is they think that the problems that you have when you're new will just become compounded when you're bigger.

If it sucks as bad with my one duplex and single family, it will be 10 times as bad if I have 10 of them. But what Erica, you're describing here is, no, you actually graduate out of that stuff, that that's sort of how you pay your dues to get started. But the more successful you get, the more equity that you bill, the better you get at this. You get into asset classes that remove a lot of those hurdles that people don't want to face. So I think that's a really good point to highlight that encourages the newbies.

Yeah. So real estate, I just feel like you can go more in or pull back, depending on what your current goals are. And I might get back into that stuff later. I have three years left, you know, before retirement eligible. And so this just seemed right for me right now. And then once I retire, maybe I'll get bored and I'll want to, you know, be more active. But right now I just really wanted something passive. It's just what your goals are at a certain time.

But it's not a permanent decision, which is the beauty of it. So for others looking to buy triple net leases, what have you learned that would benefit them? Get a good attorney. You know, I'm an attorney myself, but I'm not a real estate attorney. And so that was was vital. read as much books as you can and just think about things that I didn't think about. Like drive-thrus are very valuable. If you have a drive-through, it can be repurpose, you know, a bank, a restaurant, a Starbucks, you know, a bunch of different things. The length of the lease is awesome.

Also look at how long it's going to be until the next increase in their rent because something might look good right now. But if their rent doesn't go up for five years and then it's only 1%, you know, really you're, it's almost going down with inflation. And then look at options. The other thing that I learned was options are mostly to protect the tenant, not you, because I mean, I guess I guess that's probably obvious, but I hadn't thought about it. I had just been like, oh, options, that's great. You know, I have.

What do you mean by options? Do you explain that? So at the end of their lease, let's say they have a 10-year lease at 2.5% increases every two years. At the end of the 10 years, they have the option to renew for, maybe four options of five years each. And it lays out what their rent will be for the next 20 years and it would be after that. And they can exercise that option. But if rent has gone up greatly in your area and they exercise it, you would lose that. The landlord doesn't have the

option. The tenant has the option. And whoever has the options has the control. Exactly. Is the commercial real estate like this? Is it just as competitive as we're seeing and everything else right now in terms of apartments and mobile home parks? I mean, is it crazy out there? And everyone's just crazy prices. I don't think it, well, the cap rates are low, yeah, compared to, you know, how they have been. I don't think it is this cut throat. The multifamilies, I was getting so many calls, and I just, I feel like that was really, really ultra popular. There's less people that are probably buying in the commercial properties are often more expensive, too. You know, you can get into a multifamily, a smaller multi-family for, you know, maybe a couple hundred thousand. That makes the last.

of sense. The players maybe are more sophisticated at that level and they're going to they're, okay with a smaller return, but this is a whole lot less of them out there. You're not competing with every one of the 250,000 listeners of the Bigger Pockets podcast. Yeah. And there's other things I wish I would have known before I bought these because I would have set up a virtual mailbox. Because a lot of people, when they deal with me, they think I'm, you know, maybe the secretary for a real estate firm. And I wish I would have just kind of gone like that instead of, you know, when I deal with the Starbucks manager or the daycare owner, you know, manager that I would have just been like I'm, I'm reaching out as the manager of the company instead of saying I own it because

then there's just a, it kind of adds a level of unprofessionalism, I think. Yeah, that makes sense. What about like the types of properties? I mean, you kind of mentioned things like drive-thrus are really good because it can be repurposed and, you know, like the big national chains are nice, but you're going to get a lower thing. Anything else you can stay there? I mean, like, because One of the things I worry about the commercial is like what happens if Amazon takes over or what happens, you know, more and more that's happening, right? Or what happens if the world shifts in a way that we didn't project? Yeah, that was something I thought about. And somebody told me, try to invest in things that Amazon can't ship.

And so they had said, you know, maybe collision, you know, centers, the car accident type things. So I, one of the things I bought was a quick lube. And then a daycare, you know, Amazon can't send that. Medical will be difficult. But yeah, a lot of the things, you know, that can be shipped through the mail or teleworked will probably, who knows. I remember we had an episode of the podcast. I wish I remember the guy's name. I could look it up later and put it in the show notes.

But he buys like strip malls, like strals. And I remember him saying basically the same thing is I invest in services that you can't buy online. So the nail salon or the car repairs shop, things like that, which is really nice for long. because people are going to need their hair done no matter what. They're going to, well, I mean, pandemic's kind of slowed that down for a little while. We all got a little bit ugly. But like, if they're going to need that stuff done, their nails or hair, they're still going to need to go shop for some stuff that you just have to get.

Like, you're not going to buy cigarettes online. The service-based industries more so than goods-based. Yeah, which is fascinating. So, Erica, I want to ask you, why are you not wanting Amazon to be taking over? Wouldn't Amazon be a potential tenant for your property? That would be great if I could get something like that. but I'm not exactly sure what Amazon's looking for. I'm assuming it's a lot bigger than I could ever get.

When you say an industry Amazon don't take over, you don't mean a building Amazon would not want. You mean tenants that could not be replaced by Amazon services. Right. Right. Yep. Yeah, that makes a lot of sense. People love to call real estate passive income,

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approval policies. There's even a dedicated bill inbox for each property to keep everything organized. Ready to simplify your workflow, book your free demo at bill.com slash bigger pockets and get a $100 Amazon gift card. That's bill.com slash bigger pockets. Very cool. So you mentioned that in a few years you plan to retire from the military. Do you plan to keep your real estate going? You just plan to stay off in the sunset. What do you want to do? So our plan is to move probably overseas, you know, Portugal, something like that. And for a while, just drift. We've, you know, we've gotten to go a lot of places with the military, but you don't get to see. things when you're there. You know, you're working. And so we're going to pull the kids out of school

and just probably go do that for a while. And so I wanted something that could be very automated. And then after, you know, after a little bit, we'll probably settle down. And I can't imagine not doing anything. So I would think at that point I'll probably get back into active, more active real estate. I tried to, I tried to open a property management company a few years ago and that was a wapping failure. So maybe I'll try that again. We got to dig on on that then. Why was that a failure? After we bought that, you know, the multi-units, so I had the 64. And there was another owner in the complex that he was like, let's open this property management company together. I know this great lady. She's been working for me, helping me with the renovations. She can manage it for us. So we did.

It was a ton of work. We did the operating agreement, the LLC. We got a desk. We leased a car. we were all in. And then I moved to Germany a couple months after that because we were just sure that this would work out. And so moved there. And then after about six months, like it hadn't gotten a check, a cash flow check, which was odd because it had been cash flowing. And then she was basically a stockpiler. She would, when there was money at the end of the month, she would go to Sherwin-Williams and spend $5,000 on paint to put in the storeroom just in case we needed it later, or window air conditioners and just put them in the storeroom just in case somebody needed them. So we had tens of thousand dollars worth of supplies just sitting there.

In fact, they had to vacate one of the apartments just to use as a storage room. And so the only smart thing I did with that whole thing was pull the plug on it after six months instead of waiting longer. But it was a disaster. I mean, we had to terminate the lease of the car and all the profits. the desk, the computers, I have no idea where it ended up. It just, it disappeared. You know, you are the second guest today that told us that they didn't like paying property management.

They didn't like the service they were getting. And so they started their own company and then immediately regretted it. It's terrible. Yeah. You have to really, that's something you have to, in my opinion, that's the one thing you really need to be local for to get the employees in the processes. I can see that eventually it would work, but it's not one of those things like real estate you can just start up long distance and expect that to be a success.

I really feel like property management is one of those like it gets easy. Like you have to achieve a certain level of scale before it becomes a good business. Like even like it's kind of like Airbnb too. Like it sucks to have one or two or three Airbnb's because like you're just, you're doing everything. You don't have the infrastructure to be able to handle outsource and everything. But if you had a hundred of them like man, you hire people.

You got CEO. You got a finance person that handles all that stuff. Now you got a business. But yeah. It also has low. profit margins, high turnover with the people that they hire. I mean, if you think about all of your investing, both of you, I bet you'd agree, you rarely ever have a good experience with property management, but there's nowhere better to go to. It's just, it's the hardest component,

I think, of real estate investing. It's kind of like your offensive line on a football team. When they're not doing their job, it's very obvious that everything's going terrible. When they are doing their job, you just don't notice that they're there. Exactly. Yeah. Well, thank you for sharing that because I think a lot of people, Erica, also are, I should just do this myself and I would caution. It's tempting. It's tempting because, you know, you see what you're paying. Not only, it wouldn't use in these bigger properties, you not only pay the percentage, but you pay all the expenses. I mean, you're paying. I was paying the lady to sit at the front desk and then her 401k

and her health insurance and your and then every expense, you know, the the property management programs that those can be, you know, a thousand plus a month. And so you're like, oh, I couldn't I just buy or, you know, hire somebody to work for? for 50,000 a year and a maintenance person for 50,000 a year. And it seems like that would just save a ton of money. But I'm sure somebody can pull it off, but I could not. All right. So my last question before we get to the deal deep dive is about what you've learned

about franchise versus corporate guarantees. Do you mind breaking that down for us? Yeah. The franchise, and it does depend on the size too. So you can have a franchisee who has 100 stores. And they're probably very secure. But as far as financing, the banks have their certain standards that they want. And corporate is a way to go.

And then corporate guarantee. And then within the corporate guarantees, they're rated with these Moody's letters. And there's like the best of the best. And then it goes down from there. And if it gets too low, it's kind of the equivalent of franchisee. They don't really want to lend on it. The other thing that I found out is that different lenders are looking for different things at different times. I had multiple banks tell me, oh, we were looking to lend on that type of property earlier this year,

but we've tapped out our funds on that for this year. Next year, it'll be different. And so I guess that was one of the things I learned was I just thought, you know, if I send out my credit score and, you know, the financing or the, you know, the income and everything for these stores at every bank would be the same. it's vastly different on what they're looking for. And so you've got to send it out a lot. All right, well, we've got to begin to move this thing towards our end. So let's head over to the next segment of the show. It's time for our deal deep dive.

All right, time for our deal deep dive. This is the part of the show where we dive deep into a deal that you've done. So, Erica, why do we start with the first question? Do you have a property in mine, by the way? I do, yes. Number one, then, what kind of property is it, and where is it located? It was a 46 unit multifamily in Winston-Salem. 46-unit multi.

All right. And how did you find it? When we sold our 4plex and mine at and got the 1031 funds, I reached out to an agent that I had worked with in Winston-Salem and asked if he knew of any properties that I could buy. All right. Was it listed, like officially, or was it kind of an off-market thing? It was off-market. He had just found out about it. In fact, I just was going through my emails from him back then, and it said,

that I just found out about this and I don't think it'll last long. So if you're interested, let me know. It was a property that the, it was a, the contractor had bought it and he was flipping it, basically flipping a multifamily. And so you bought it from them. So how much was the property? What were they asking for it? 1.25 million.

And then what price did you negotiate? That was about what we paid for it. Okay. Any negotiation strategies in there? Not really. Yeah. Yeah, because he had bought it for like 600,000, you know, three months earlier, but he owned his own construction company.

So he had his team go through and remodel a bunch of things and fix things. So as part of the negotiation, we had him fix a few more things. So instead of reducing the price, that's how we got some more. We like laundry machine, you know, washing machines, which I'm a huge fan of owning your own coin operated machines. Those are cash cows. That's smart, though, because you saved your own capital that you now don't have to put into the deal because they're doing it. And you sort of increased your NOI before you even bought it by

having additional revenue put in by the seller. Yeah. And there was really nothing to repair until, you know, even when I sold it a few months ago, I had very little expense in changing things out. Yeah, because we often just focus on price. That's what everyone says is. Well, what price did you pay? But the price isn't as important when you're, what was your interest rate on this deal? 3.99. Yeah, that's not a very expensive money to be borrowing. But if you had to dump big amounts of capital into making repairs or adding those laundry machines, that would have had a significant impact on your IRA. So I think that's really smart. You did that. I don't want to overlook it. Okay. How did you fund this deal? The same loan officer that had, I had worked with the year before.

I reached out to him and a few others, but he ended up, we developed a relationship. And so I still, I still work with him a lot. You just put down the 1031 money you said, right? Yeah, the 1031 money. And I think, you know, you can't get it right now, but it was only 15%. sent down at that time. And then the question, like, what did you do with it, meaning long term? Like, you held it. I'm assuming you rented out. Did you fix it up more? Like, what was the kind of the process looked like the next few years? That one just kind of sat. I mean, we cash flowed it. It was managed, you know, professionally managed, but it cash flowed. We did refinance it once, pulled some money out. And then we sold it last August. So that was the outcome, basically.

What was the outcome, I guess, in terms of like, sorry, Dave, I'm still on your question here, but like dollar amount or like what kind of profit did you make, if any? We still. We I sold it for 1.75. That's a little bit of profit then in there. It was funny when I was looking through some of my old emails to, you know, prep for this. It cap rates back then were that they were selling it, I think, nine and a half cap rate. And but we thought maybe we could get it at 11 cap rate, which is crazy because I think we sold it at, you know, six and a half. So it's just cap rates are really compressed right now with the low interest rates.

What did you learn from this deal? So I was hung up on this deal about. the guy I bought it from had bought it so low and was selling it for like double the price a few months later. And I really got hung up over that. But the thing I learned was there's meat on the bone, even if you didn't get, you know, the deal of the century. If you keep things, it's not always don't get hung up on what the other guy paid. As long as there's still room for you to make some money, just worry about yourself. All right. Well, thank you for sharing that. That sounds like an awesome deal. And again, just shows the power of like you buy real estate, you hang on to a few

years, it goes up in value, you take that profit, you dump it into a larger deal, make it more passive, get your systems better. And just over time, it just gets better and better and better. I love it. I love your whole story. It's just like it's like I want everyone to listen to the show. Be like, this is what a career in real estate investing looks like. And you're going to experience some fruits of that here as you retire and sail off into the sunset, which is awesome. So, with that said, let's get to our last segment of the show. It's time. It's Time for our Famous for.

These are the same four questions. We ask every guest every week here on the Bigger Pockets podcast. Now we're going to throw them at you. So number one, Erica, favorite, either long-term favorite or maybe recent favorite, real estate-related book. My recent favorite is the Due Diligence Handbook for Commercial Real Estate by Brian Hennessy. That it was very helpful because due diligence is different with commercial. All right. Awesome.

I've not read that one. but that's definitely one I should probably read. What about your favorite business book? Free to Focus by Michael Hyatt. Michael Hyatt. I love Michael Hyatt. It's good. I don't know if he's coming back on our show.

I don't know if it's already aired by the time this show comes out. I think it's already aired probably by the time the show comes out. But yeah, Michael Hyatt's super good dude. And free to focus. Great book. All right. What are some of your hobbies? I like reading Louis Lomor Westerns and gardening.

And so if I, you know, we move every couple years for the military. and if I could have all the money back that I spent on gardening at each house, I probably could have bought another multifamily, but I love it. Louis Lomor has like, how many books does he written, do you know? Like, go to the library and there's like shelves of his books. Hundreds. Yeah. I have probably over 100 myself.

Is he still alive? No, he's dead. Oh, that'd be a great interview. How do you pop up that many books? Like, what's that process look like? That'd be fascinating to hear. All right. Then last question from me.

What do you think separates successful real estate investors from those who give up, fail or just never get started. I think it's passion. If you love it, I think you'll keep trying, no matter how many times you might fail. If it's not your passion and you quit, there's no shame in that. Find something you love. You just get one life, enjoy it. Might not be your thing. Very cool. That's such a good answer. That's such a good. Because if you don't love it and if you don't have a passion for it, like you're not going to continue. Even like real estate, some people say like, well, I don't love real estate. Well, like, you might not have real estate, but you might love, like, be passionate about managing people or about, like, fine, you could put that to use

in real estate, make them do the real estate. You're more of like a CEO type that runs your business. So there's different ways to approach it, even if you don't love changing toilets and batteries and smoke alarms. So lots of ways to make that happen. Very cool. Well, Erica, this has been fantastic, really, really good stuff today. I love your story and I can't wait to see kind of where you head off in the future with more of these deals. I'm definitely inspired to check out more commercial. I really should dig into that a little bit more. We've got a couple of guests lately that have been crushing it in commercial worlds. So I'm excited. But yeah, keep keep doing it. Thank you. Yeah. It's a good thing for right now. And then maybe in a few years, I'll be back

to multifamilies. Yeah, maybe. Well, very cool. Well, anyway, thank you for joining us. David, if you want to get us out of here, that would be a good next step. Erica, where can people find out more about you? I have Facebook. I don't. I'm not selling anything or I don't have a professional website or anything, but I am, I am on Facebook. Very cool. What's your, do you know your Facebook name on there? Is it just? Erica Miller-Slegger. Yep. Okay. We will also link to that, of course. In the show notes, you can get at

BiggerPockets.com.com.com show 456. You can also, of course, go to there, everybody, and ask your questions in the comment section of that page. You can ask questions there. You can also, if you're watching this on YouTube, you can put comments below. Please do. And don't forget to like, like, if you're watching this on YouTube, like, you know, thumbs up it or whatever so that YouTube knows it's a good video and they show it to more people with the message of portfolio building and the amazing power of real estate investing. So, Erica, thank you. Thank you.

I appreciate you having me on. Thank you for sharing your story. It was awesome. And also, thank you for your service. I'm a huge fan of hiring people in the military. By the way, Erica, have you heard of the Skills Bridge program before? I have, yeah. I share that with everybody who's in the military.

The military will basically pay you to learn a industry outside of the military. So I have people that intern for me that are in the military through that Skills Bridge program. Oh, awesome. If you're looking to grow your business, Erica, that might be something you could consider when you're out. And I'm definitely doing the same if people are looking to learn real estate while they're still in the military. So thank you. All of those that are in the military listening to this right now, thank you for what you do. And do not believe the lie that you can't get wealthy while you're in the military or while you're a first responder or while you're a teacher.

Let real estate do all the heavy lifting. Just learn how real estate works and it can make you wealthy. so. Thank you, Erica. This is David Green for Brandon the Louis Lamoire of Real Estate Investing Books. Turner, signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the height, you're in the right place. Be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast.

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