BiggerPockets Real Estate Podcast - 496: Become a (Small) Multifamily Millionaire in 7 Steps w/ Brian Murray and Brandon Turner

Episode Date: August 19, 2021

For the most part, Brandon Turner was able to achieve financial independence through small multifamily investing. This is why investing in duplexes, triplexes, quadplexes, and even 24-unit apartment buildings can be a fantastic learning experience and money maker for new landlords. But how do you get started if you’ve never bought a property before? Brandon and his co-author of The Multifamily Millionaire, Brian Murray, walk through the seven steps to go from real estate onlooker to small multifamily master. We talk about everything from defining your criteria, financing, management, lead generation, and more. If you’re looking to build a portfolio of small multifamily properties that will allow you to break out of the rat race and do more of what you love (which may be large multifamily), make sure you not only listen to this whole episode but get Brandon and Brian’s new book! This is a two-part episode series. In part one we talk about small multifamily and in part two we talk about large multifamily, both episodes have crucial information for anyone trying to get into the multifamily space! In This Episode We Cover: The difference between small multifamily properties and large multifamily properties Financial independence vs. generational wealth and understanding which goal you have Why you don’t necessarily need to start small in multifamily Defining your crystal clear criteria and knowing what you want On-market leads vs. off-market leads and the pros/cons of both Financing small multifamily properties and house hacking The “multifamily warp” that takes you from newbie investor to multi-millionaire And So Much More! Links from the Show BiggerPockets Forums BiggerPockets Calculators BiggerPockets Youtube Channel BiggerPockets Bookstore Realtor.com LoopNet Zillow Jason Drees's Coaching Ryan Murdock's Instagram Mike Williams's LinkedIn Profile Micah Cabagbag's Instagram BiggerPockets Podcast 126: From 0 to 400+ Units Through Value-Add Investing with Brian Murray BiggerPockets Podcast 212: Buying a 115-Unit Apartment Complex for No Cash Out of Pocket with Brian Murray Check the full show notes here: https://www.biggerpockets.com/show496 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 496. Volume one, it's achieve financial independence by investing in small multifamily real estate. That's the American dream, right? So you can start with very little and you can achieve financial independence. And in volume two, it's create generational wealth. So once you're financially independent, you start thinking about the future of your family, your kids, like what's one of those future generations and what can you leave for them? So it's just an amazing opportunity.

You know, you just don't see that. But, you know, if people question whether the American dream is still alive, I point them to multifamily real estate. 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 benefited from BiggerPockets.com. Your home for real estate investing online. What's going on, number one. It's Brandon Turner, host in the Bigger Pockets podcast, here with my co-host, Mr. David, Single Family Green. What's up, man? Do you have any multifamily yet?

That's funny that you labeled me that way. Well, I mean, it's not a derogatory term here. This is a good thing. I have multi-business. I have a one fourplex, I would say. The rest of our single family. Well, I'm a liar then. Well, also joining us today for the introduction here, which we don't usually do, but we actually have our guest today, Mr. Brian Multifamily Murray. What's to Brian Multifamily Murray? What's going on? man. Hey, how are you guys doing? Really excited to be here today. Sweet, man. This is going to be fun. So for those who don't know, Brian is my business partner, co-founder of Open Door Capital, author of Apartments in Commercial Real Estate, which is one of the best selling real estate books ever, and a genuinely awesome dude who understands multifamily better than anybody I've ever met in my

entire life. And so I'm excited to have this kind of conversation today about multifamily. I want this to be the best multifamily, like, the best multifamily, like resource podcast ever made. So You guys up for the challenge? Yeah, let's go. Well, before we get to that, let's get to today's quick tip. All right, today's quick tip is nice and simple, and this is going to be me totally plugging my own thing. We are launching today the multifamily millionaire book, which is the book volume one and two, which Brian and I wrote together. So it's a quick tip.

Go pick it up. So go to biggerpockets.com slash multifamily book, and you can get it there. And if you get them from bigger pockets today, there's a bunch of cool bonuses. And we'll talk about that later in the show. I don't want to spend the whole intro talking about all the bonus stuff, but just trust me, these books are going to change your life. So go get it, biggerpockets.com slash multifamily book. Most investors spend more time chasing deals than reviewing their insurance.

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We'll talk about who me and Brian are and how we got in a multifamily. But this is really about the smaller side of multifamily. Then the next episode we're going to release on Sunday of this week. So just coming up here in a few days is going to be more geared towards the larger deals, the syndication, the bigger stuff, which both are good for everyone to listen to it. I don't want you to be like, oh, well, I only do small deals. I'm not going to listen to the second or I only do big deals. I think both have a lot of fundamental stuff. So just keep in mind, this is episode one of a two-part series.

All right, with that said, I think we're probably ready to get into this, huh, David? Well, let's hear from Brian first. Brian, what do you think is the most important thing for today's listeners to take out of this show? I think that, you know, there's not been a lot of resources like this available, potentially ever. And I think if they can see the value that we're putting out there in these volumes of the book,

you know, I want to give them a little bit of takeaways that they can use. right away, but also just share with them, you know, what a great opportunity this is that Brandon and I put together to help them out. So first off, let's talk about why people should listen to you guys at all when it comes to this space. So walk me through, rock us through your brief stories around multifamily, how you got into it, what your portfolios look like now. And Brian, we'll start with you. I actually started off with an office property as my first investment property. And my second property was a retail property. And it wasn't until my third property that I got my first multifamily. So I had exposure right out of the gate to all different types of asset

classes. And multifamily was by far my favorite. And so I took it, I pivoted once I got that first multifamily and I saw what kind of opportunities it presented and the advantages of that as an asset class, I pivoted away from office, retail and other properties. And I've been growing in the multifamily space ever since. So yeah, that's how I got there. And I just love to share what I've learned along the way. It's been a passion of mine because I know if I can do it, so can everybody else. Brian's being humble here. This guy owns tons of multifamily and has crushed it for the past what decade. You were a teacher, right? And like you went from that into multifamily? I was. I jumped into real estate because I wanted that extra income and real estate seemed like the path

that could get me there and generate some wealth and the financial freedom that I sought. And, I loved investing so much. And I think it ended up being 10 years before I took any money out of my investment properties, which is, you know, it's ironic since that's what got me in. But I just kept wanting to invest more and put my money back in and keep improving the properties and growing that portfolio. And now I've reached a point in my life where I can reap their benefits of that. So let's get into why you switch before we go to Brandon's story from commercial into multifamily. Let me ask you, how did you get started with the commercial properties? I really had no idea what I was doing, to be honest, when I first started.

I looked at all different types of properties. I started off looking at like duplexes and triplexes, single family homes. And I really wasn't finding anything that would get me the returns that I was looking for. So I started to expand my scope of what I was looking at. And I also began to learn about creative financing structures and how I could take my savings and make it go further. and I just came across some commercial properties and started to evaluate those, learned a little bit about things like owner financing and assuming mortgages and things like that. And eventually I came across this office property and they were open to me assuming the mortgage.

And I figured out how to get into a large property without putting a lot of cash down. And that kind of catapulted me into a pretty big property right out of the gate. So you really pulled yourself up by the bootstraps. I thought you were going to say something along the lines of a family-owned business that I had to buy or I had a mentor that was involved in it. But it sounds like you just set out on your own and that was the space you started in. Yeah. And I learned some hard lessons along the way. You know, I didn't have a mentor and I read everything I could get my hands on.

But I still made a lot of mistakes. But one thing I love about investment property and multifamily especially is it's very forgiving. Like you can make mistakes. And if you work hard enough, you can easily compensate for those mistakes and be successful. If I could jump in real quick, what's cool about Brian's story, and mine's related, but neither of us started as wealthy people. He was a teacher. I was working in a bank, you know, making $13 an hour. And, you know, even before that, working at Coldstone singing for tips, right? When I got my very, very first deal ever. But what's cool, like it shows you the power of why multifamily can change a life. You know, we could have called these books like the book on multifamily real estate investing to kind of fit with the theme. But we call it the multifamily millionaire, specifically to draw out that point that multifamily can make you a millionaire. And and in a shorter amount of time than you think possible. Like, nobody would have looked at me or Brian years earlier and be like, yeah, they're going to be millionaires.

But just buying some multi-fiant properties and we really go in depth in this in the books. This is the idea of like you can really scale up pretty rapidly as you build that knowledge and as you build that network and the credibility and the trust and you recycle that money back in again. It's pretty awesome. And I see that in your story, Brian, very much how you started with nothing and became a multimillionaire through real estate. So good job, man. Yeah, thanks. And to you as well.

And I point people to the subtitles of the books, which there's a lot of meaning behind those. You know, in volume one, it's achieve financial independence by investing in small multifamily real estate. That's the American dream, right? So you can start with very little and you can achieve financial independence. And in volume two, it's create generational wealth. So once you're financially independent, you start thinking about the future of your family, your kids, like what's one of those future generations and what can you leave for them? So it's just an amazing opportunity. You know, you just don't see that.

but, you know, if people question whether the American dream is still alive, I point them to multifamily real estate. Yet, not only did you two start without being wealthy, you started sort of from the bottom, but you also started in different asset classes than where you ended up. And that's a good thing to highlight is that you don't have to have it all figured out to take the first step. Most people I've ever talked to, you pivoted once or several times in their career and found their way into the asset class that worked best for them.

And I noticed that showed up in both of your stories. So Brandon, you sort of went from the single family road into the smaller multifamily. Tell me a little bit about the difference between large multifamily and small multifamily. Yeah, good question. So I started, yeah, I started my very first one was a single family house. But even that, I rented out all the bedrooms to buddies of mine. So in a way, it was like a kind of a hacked multifamily. And then I bought a duplex.

Some people have heard my story before. But about that duplex, I lived in half of it, rented their house hacking, which I'm a huge fan of. and we talk about in the volume one. I went from that into buying a little bit of flipping, but eventually about a fourplex, a five unit, then because I'm duplexes, triplexes, and then eventually about a 24 unit. And I would call all of that the small multifamily.

So you asked what's the difference, like what's the difference between the small and the large? I mean, it's kind of like this fundamental idea of like, what, how do I say this? Like, what's the difference between small and large? Let's phrase it that way. It's not a unit number necessarily. And in fact, when we wrote the two books,

the two volumes, with that. Do you remember Brian we were like on Haleakala, like the big mountain here in Maui? And we're like driving up there to go do a bike ride together. And we're sitting there chatting about like, what if we wrote a book together? And we're sitting there going, well, this is what I'd write about. And he's, well, this is what I think we should write about. And we realized there's two entirely different yet the same games here. Small multifamily is, I mean, like it's duplex, triplex, fourplex, of course. But the way you buy a five unit or a six unit or a seven unit is not that different from buying a one or two or three unit. Right.

It's all the same approach, basically. We can dive into that, David, if you want to. But it's like smaller, even like a 10 unit or a 20 unit. When I bought a 24 unit, I would still call that small multifamily real estate because of the approach. Like the approach was very much hands on. I did everything myself. I would hire a local property manager or an on-site manager to take care of it. It's very much like, it's very me-focused.

I'm just doing this thing. And so where's the line, the number line? I don't know. I'm actually curious, Brian, where you, like, what your thoughts on that, but it's very different than a 200 unit property, right? That's large. Absolutely. And, you know, I think people gravitate to this idea that if you have this unit number, you want to clearly say what's small and what's large. And Brandon and I went back and forth on that for so long. And we realized that when you get into that 12 to 30 unit range, you could actually

take multiple approaches, right? You can you can approach it very similar to the way you would a duplex, or you could kind of approach it the way you would approach 100 unit. And as you get further up in the unit count, it becomes very clear that, hey, no, that the lending process is different, right? The way you're going to potentially raise capital and the way you underwrite it, the things you're looking for. So we recognize that there's a whole approach for both small and large and in the end, we wouldn't do our reader service if we try to jam those into one volume because there's too much there. And, you know, there's, there's been plenty of great books out there on multifamily, but none of them are comprehensive and they don't go into the level of depth. And we want to share everything that we've learned, the mistakes and, you know, the things that work and don't and have a resource that, you know, you just can't find out there right now. But Brandon and I are both teachers at heart.

And when we figure this stuff out, we want to share it. So that's what we wanted to do. Yeah, you know, one, like one rule, and I 100% agreed to all that. But one rule of thumb that I use, that I put this actually in the book. I have this like side by side comparison of small versus large. But my favorite one on there is the owner knows the tenant's names. If you know your tenant's names, it's probably small multifamily. Even if you're like when I had a 24 unit, I knew all my tenants names.

Not by heart, but if I saw their name, oh yeah, that guy's in that one or that lady's in that one. But with our like large multifamily, like the 530 that we're buying right now, Brian or the 100 unit or the 50 unit, like I don't know the tenant because it's a different. That's a business that we run versus a personal investment that I run. And that's the difference that we're trying to get at here, small versus large. And there's not saying one's better than the other. Some people will stay small forever.

And there's nothing wrong with that. It's great. It's a great business to be in. And that's why Volume 1 is all about that. But some of us, like Brian, you and I, the last couple years, especially you a lot earlier than I did, got really excited about the large, like, the business of it. Which goes into, you, you read the subtitle of the first book. The subtitle the second book is create generational wealth by invested in large multifamily real estate. Can you explain the different?

I know I'm taking back over the mic here, David. I'll give it back to you a second. But like, what's that difference between achieve financial independence with small and create generational wealth? What's the difference there, Brian, between the two concepts? I think, you know, everybody's got their own definition, of course, you know, but the way I look at it is financial independent. You want to have the freedom to live the life you want to live, make your own choices and not be boxed in by constraints that other people put on you. And generating that financial independence, you know, that that's having enough income that you don't have to rely on somebody else. You can make your own decisions. do what you want to do. But at that level, it's really about you and your spouse, perhaps. But when you start to get into generational wealth, you're looking at a level of freedom, not just for yourself, but for people that you care about or are special to you in your life, whether it's your kids, your grandkids, causes that you believe in, that you want to continue on and impact after you're gone. To me, that's what generational wealth is. It's making a lasting impact that's going to affect

the lives of others after you're no longer there. So it's a whole other level. Can you achieve generational wealth through small multifamily? Absolutely. You can. There's plenty of people who do that. But certainly you can put your investing on steroids if you go bigger. I think the real message there is you can do that if you choose to do it.

It's not necessarily better or worse. But we want people to know that don't be intimidated by those large properties because it is within your reach. So to sum up what separates small from large multifamily, one thing was the way you manage it, Do you know your tenant's names or do you have a person in charge of managing that? It was also mentioned financing. Are you just getting a loan yourself or I'm assuming here are you raising money as a larger group? Is that basically what your guys' stance is? Yeah, those are three of many, you know, and it's a blurred line, right?

I mean, you could technically, you could treat a duplex the same way you treat a 200 unit property. You could create a syndication or raise money and get this fine. You could treat a two, three, five, ten unit property. Just most people don't. Most people start in the small multifamily world of managing themselves, figuring it out, maybe they hire a local property manager. They know their tenant's names, all that stuff. And then they eventually move into the larger.

I'm curious, Brian, what do you think? Do you need to start with small and moving up to large? Can you start with large? What's your thoughts on that? I don't think I've ever asked you that question. You know, I've met plenty of investors who's been successful doing both. And it was eye-opening for me when I did that. But I have seen people jump in and start with a 70 unit or even a hundred unit.

And usually they surround themselves with people to help them do that. If you don't know how to do it all yourself or you don't have experience, you have to compensate for that by partnering with the right people. So you can jump in and do that, particularly if you have a really valuable skill set, that you can bring something to the table, whether it's the ability to find that great deal and that'll attract a lot of attention, the ability to be really personal. and attract investors who want to bring capital to the table to help you pull the deal off. There's plenty of ways you can get in directly to large.

I do think you're better off if you can find a way to build that foundation with small multifamily like you did, Brandon. I think you go into it better prepared overall to get a fuller picture, understanding of the underlying concepts that are at play there. David, where do you want to go next? I want to go through the seven steps? Yes, I understand we've got seven steps that work for small multifamily. and I want to start.

Brandon, we'll go to you for those. What is step number one? Yeah, so step number one that I wrote down here. And again, my goal today, like in this podcast as we were going through it, was to give you like a step by step. Like, anybody to listen to this show should be able to go out and buy a small multifamily property. That's my goal with this episode.

So I broke it into seven steps. So, I mean, obviously I'm kind of leading a lot of the charge here on the small multi side because that's my strength. And Brian's leading the charge on the large. But hopefully we go, you know, this becomes a collaborative effort with the three of us today. So step number one that I have here. I wrote commit to the process. What I mean by that is so many people I meet.

I go to a local meetup or a real estate club or I meet them in the bigger pockets, forums, or they come out and hang out in Hawaii. And they say they want to buy real estate. They say they want to buy multifamily. They're going to get into it. And then six months later, they haven't done anything. A year later, they haven't done anything. And so I know this is like the least tangible of everything.

And I harp on this topic all the time. I know, David, you do as well. But there's just a different. And there's a difference between somebody who wants something and somebody who actually does it, right? Michael Jordan once said some people want it to happen, some wish it would happen and others make it happen. And so step one is like, commit to the process, like commit to the game. Like I'm in this. I'm going to do it no matter what.

And I'm going to alter my identity by the actions that I take regularly. This is not get rich quick. This is not. I'm just going to wake up one day with a bunch of multifamily. This is going to take a long time to build. But I'm in it and I'm committed to it. So I think just the first step has to be that commitment piece that says I'm in it. And a good way to do that is like, or to ask yourself if you're committed is, are you taking the time?

Like, if you told me you were committed to losing weight and then I went to your house and you're just eating like twinkies and nachos on your couch, watching dancing with the stars, I would assume that you're just a liar, right? Like if that's all you did every day because your actions aren't backing it up. So if you say you're committed and you've been committed but you haven't done any action in the last month or two or week, then there's some dissonance in your actions and in your intention. would say it's more desire. So step one, I would say it's commit to the process. Brian, what do you think on that? Absolutely. Agree 100%. In fact, you know, we were talking a little bit before this podcast about, I commented that there's a piece of bonus content. If you buy the books through bigger pockets that you get access to, it's about an hour-long conversation that we had on mindset. And wow, I just, I really wish we could have fit that into the book. I mean, it's such a

comprehensive book already. So, you know, we couldn't get everything in there. But we did record a great conversation and mindset is so important. The longer I do this, the more I realize that's one of the biggest obstacles that everybody faces and you face it every step of the way. It doesn't actually go away. So those same limiting beliefs that you might have about, oh, you know, how could I do this? And you never get started. And is it really possible? And do I have enough money? And everybody's got these reasons. They think they can't take a step forward. And so having that right mindset, whether it's buying your very first, duplex or going from a 100 unit property to a 300 unit property. You know, I still have limiting

beliefs and I have to check myself sometimes. You know, we just, we're in the process right now of acquiring a 530 unit. And, you know, if you, if you had asked me whether that was something we'd be able to do even two years ago, I would have scoffed at it, right? I didn't think I could do that. And now I realize that that was another limiting belief. You know, when I do webinars for bigger pockets, I have a slide that talks about what commitment is, because I think a lot of people think that they're committed, but we don't have a definition of what it is. And I love this definition. It's the state of being bound emotionally or intellectually to an ideal or course of action. And I love that it mentions both emotions and intellect. Both of them have to be there and being bound. You cannot separate yourself from something when you are bound to it. That ideal or course of action that's going to happen. You are binding yourself to it. So you can't separate yourself from that course of action. And you're connected both intellectually and emotionally. And I love that definition because I think when we say you got to be committed, people go, oh, I know how to be committed. You know, I've been committed to eating cereal

every morning for the last 30 years of my life. I can do that. But they don't actually adhere to that definition when they're moving forward. So, well, let me ask you, David, then. How does somebody get that? You know, there are people listening around and are going, oh, I know, I've been trying for years to get in this. I just can't seem to get that level of commitment or take the right action. I can't seem to keep promises to myself. I'm just, I'm struggling with that mindset thing. So I'm curious, David, how do you see a path forward for those people? And then I'll fire the same question at you, Brian. How do you see a path forward? I think it's similar to when people say, how do I be a good person? It's very difficult to just say, I want to be a good person. You cannot generate the desire inside

yourself to be a good person. What you have to start off with saying is, I am a bad person. and letting yourself feel bad for all the ways that you do something selfishly or you make excuses for something that benefits you and not other people. What I would say is people should say, I am not committed. That's like the, I think I'm committed, but I'm not. If your emotions are not involved in the thing that you're trying to achieve, you are not committed to it. You can't be in a relationship without your emotions being a part of it. You may be there. You may not be seeing other people.

That is not the same of having a living, breathing relationship. Emotions and intellect both have to be there. So I would say the first step is just acknowledging you're not committed. The next step is say, why am I not? What is holding me back? Am I afraid of being hurt? Am I afraid of failing? Am I afraid of missing out on other options?

Everyone has reasons that stop them from committing, but we don't always acknowledge them. So it's digging one step deeper to say, let's be honest with myself, what is preventing me from committing to this? And when you identify that, you can start the breakdown of removing that out of the process. And then the commitment should sort of happen naturally. That's awesome, man. Brian, what do you think? I agree 100% with everything David said. You've got to want it, right? You've got to want it enough. The hunger needs to be there. I think one of the biggest obstacles people face is, you know, they're looking at this mass, what they view is this massive undertaking. And so just another little key I would throw out there is you got to learn to take small steps and recognize that those small steps add up to the journey, right? So stop looking at, you know, you have to eat the elephant. I get it. you got to eat the elephant like one bite at a time, right? That's the answer. Yeah, that's so insightful. It's like going to the gym, right? Like you go there and you see all these bodybuilders with like these big guys or

or women who are like super in shape and you're like, oh, I'm never going to get there because you're looking at that ideal. But rather than setting that as the goal, maybe the goal should be, I'm going to go to the gym twice this week. Like that's all I'm going to do. I'm going to take the baby step to get there, which is kind of the goal of today's episode, right? We want to give the step by step to getting that deal. So if right now you're like, I've been wanting to do multifamily for a long time. I want to buy myself a small multi. Maybe I buy a fourplex. Maybe I want a house house house house. or whatever. What's like a small action you can do this week? Maybe it's buying a book. Maybe it's going to an open house. Maybe it's just going to realtor.com and sorting only multifamily. Just for the heck of it. Just go there and see what's there. Go to realtor.com. There's a filter multifamily only.

See what shows up there. Or go to LoopNet and register on LoopNet if you want to the larger deals. And just download an executive summary of some deal that some broker put out there and read the whole thing. Tiny little step. You're not committed to anything. You're not even spending any money whatsoever. So let's not give away too many of your steps ahead of time here. You're starting to get in step number two. What is the formal definition of step number two? All right. Formal definition of step number two. And this actually is a great transition. Well, well done there, David. It's like you're a podcaster. Define your crystal clear criteria. And here's what that is. It's a term I've been using a lot lately. And it comes, I kind of came up with this framework while writing the multifamily

millionaire volume one. And that was like so many people go into real estate. They're like, I just want to buy real estate. I want to invest. And you're like, well, what type? You're like, I don't know, I just want to buy real estate. And when people do that, when they have that lack of clarity, one, it's hard for them to get excited and take action. It's hard to become an expert. It's hard to get other people on your side. It's hard to get the motivation to do it. And you don't know what the next step is. You don't even know what the baby step is because you just don't know, right? When I got into like, for example, mobile home parks, like it wasn't that mobile home parks are the best business in the world. I like them. That's why Brian and I do them together. We like them,

but we also like self storage. We also like apartments. We also like Airbnb. It all works. All of that. can help you become a multi-family, I mean, I'm a millionaire. We just like multifamily, and specifically, we chose at that point, mobile home parks, because I needed to get clarity so I could get depth, right? In a world where everybody likes to go a mile wide and an inch deep, in real estate, I wanted to go a mile deep on something to become the world's best expert at that thing. And so that led to this idea of the crystal clear criteria. And this applies to everybody, no matter if you're looking for your very first deal or your 1,000th property.

And this is what the Crystal Clark criteria is. And I want you guys to write this down. If you're listening to this, write it down or pull over and put it in your phone. Number one, define your location. So where are you going to invest? We're talking small multifamily on this episode. So it's probably something in your own area. It's probably something right in your backyard.

Maybe you're going to house hack it and live in one of the units. Maybe not. But it's probably in your location. Can you do small multifamily from a distance? Of course. But most people will start in their own backyard if you can make it work. The great thing about small multifamily is that it literally works everywhere. Unlike how some houses just will, you cannot buy a single family house in Hawaii and make it cash flow.

It is impossible. You'll just never get it. In the Bay Area, it's almost impossible to buy a house. It's probably impossible. Is it possible to even David in your area to buy it without a house stacking without doing where is it? Could you just buy a house and have it cash flow from day one? Not a standard three two. Not a standard.

Yeah, exactly. You can't do it. Multifamily, though, I would even go as far as I say in every area, at least in the United States. You can find a way to make multifamily work in every area. So it's different than single family and that you can make it work. So anyway, location. Number two is property type. What type of multifamily do you want to buy?

And in fact, I'm going to throw out a few of the different types here. I just want to read them real quick and make sure I have the whole list here. Property type. So again, this is for small multifamily, but this could be anything. There's a single story like side-by-side multifamily, which is like, you know, maybe a duplex or triplex. There's like three. They're next door to each other. They're usually touching walls, but sometimes there's two units on one lot.

That's a certain type of multifamily. Then there's like up and down, right? Where there's a unit upstairs and a unit downstairs, maybe three floors and there's a, you know, top and bottom. Then there's like the cottages or ADUs. A little different. Cottages is like there's like a bunch of little properties on one lot. A DUs is where you add another unit to a single family house. Then there's the monster house. You guys know, if I say monster house, it's like, think Frankenstein, where Frankenstein's monster was made out of like pieces of a bunch of other little like dead bodies, right? And so like it's all pieced together and like bolted on. That's how I look at a monster. house. I've actually owned numerous monster houses in my life. In fact, my own house here in Hawaii is kind of a monster house. It was a single family house and then they like added on and they remodeled the basement at some point in the last 50 years and they turned it

into a multifamily. So a monster house is like a single family house that's been hacked together to turn it into multifamily. Sometimes legally, sometimes not legally. And again, I go into depth on like what the legal side of permits and zoning and lending and all of that is with that stuff. And then there's like a starter apartment

building, usually like a 5, 10, 15, unit building. And then there's like a garden style apartment and then there's the larger apartment stuff that Brian gets more into in volume two. But the idea is like what do you want? If you want the like starter apartment, that five, 10, 15 unit kind of like building, then go after that. Define what that is. But if you want a duplex and you want to live in half of it, then define what that is. But have a clear idea of what you're headed for. You can always correct course along the way. You can add more later. But right now, what are you going for? Anything you guys want to add on that button before I move on to the rest of the CCCs? I know I'm talking a lot here.

So number one is location, number two, is property type. Number three is condition. That's self-explanatory. Do you want a fixer-upper? Something that you can completely remodel, something that's already done, a new build. What do you want? Price range. We talk a lot about having a maximum purchase price, which you can work backwards,

how much can you afford to buy? But also, I think it's important to have a minimum purchase price. This doesn't get talked about enough. You know, like, in our world of like the larger multifamily, we have a minimum right now about $5 million. We don't want to buy anything under $5 million. Now, why would we say that? because it takes the same amount of work to buy a $3 million property as a $10 million property.

So for me and Brian, we have a minimum. It's not worth our effort to focus on the entire spectrum, but let's pick a range and go after that. And then finally, the last one is profitability, which means you should know what makes it a good deal. Now, when we get into larger stuff, we'll talk about profitability different with Brian on the next episode. But when I look at profitability, I'm talking about like how much cash flows it's going to generate. So if you're house hacking, maybe it says, hey, your goal is to live for free. Or if you're going to buy a 4plex, maybe your goal is $100 in cash flow per unit. Or I want to make an 8% cash on cash return.

If you don't know what those terms are, you can Google them or you can go to bigger pockets or you can read them in the book. But having an idea of what makes a good deal allows you to decide, is this a good deal or not. So many people are like, well, I don't know how to find a good deal. And I'm like, well, what's a good deal to you? Well, I don't know. Well, let's start there. So again, the crystal criteria is knowing what location, what property type, what condition, what price range, and what would make it a good deal? What makes it profitable? And when you can define those five things,

now that's a mile deep. Now you can be like, I'm the best person in my area, and I've focused my marketing and my analysis and everything off two to four unit properties in Cincinnati that are in a fixer upper condition, somewhere in the $100,000 to $300,000 range, and I need to make at least a 10% return on my money. Wow. Like, just defining that makes you more committed to the process, which relates back to the first step, right? Because now you're like, oh, I'm serious. versus somebody who's like, I just want to buy real estate. I want a good deal. So do you have examples in the book of how people can help determine these and tricks for picking the right ones? Yeah, I actually have a whole chapter on each of the CCC. So there's one on property type, one on location, where we go to like, yeah, crime and yeah, much more detail. So yeah, condition,

so yeah, condition, profitability, price range. That's a common question. A lot of people ask that. How do I pick this part? They don't realize what they're asking is how do I get crystal clear criteria. So I'm sure that that's some really good information in there. I know the question comes up all the time. Whenever I talk about this, they say, well, how do I know what to pick? And I like to say, it doesn't really matter. Like, it doesn't really matter. It's more important that you decide than what you decide. They don't know if I should buy a mobile home park or a bunch of townhouses. They both work. What fires you up? What gets you excited? What episode of the Bigger Pockets podcast were you listening to and you're like, oh, what that guy does sounds so cool. Great, do that thing because that works. So it's more important that you decide than what you decide. Yeah, totally agree with that. It's hard to hit a bullseye when you don't know what target you're, you know,

you're aiming at, right? This is why we like, Brian. He can summarize like an hour of me like rambling into like one sentence that like, makes me more sense. This, I mean, I love when Brandon came up with this acronym, absolutely love it. Like it, what it communicates and it's the importance of the specificity. And you know, that's one of the objections we hear from investors all the time, right? like I can't find a property, but then, you know, maybe, Brandon, you could speak real quick to, you know,

how does that relate to your crystal clear criteria? Yeah. I mean, the idea being, they say I can't find a property. I always work backwards to, okay, well, what, you know, define your crystal criteria. Tell me exactly what you're looking for, right? And they can't, 99% of time they can't do it. Now, if they can, then it's like, okay, well, how many offers did you make last week? How many deals did you analyze?

Let me see your, it's multifamily real estate especially, all real estate is very, it's a business. It's not a complicated thing. It's just like you can dissect a little thing and you can find out where the problem is and then work backwards. But again, 99% of the time they just haven't defined their criteria. So they can't get good at marketing for deals if you don't know what you're looking at. Yeah. And if you're overwhelmed with volumes, like just an enormous amount.

If you don't have that CCC, you have so many deals to try to look at and figure out, it's just it can bury you. Right. So if you're going to find that, if you're going to hit that bull's eye, like let's define the target, you know, before we pull back the arrow. Most investors spend more time chasing deals than reviewing their insurance. But a quick coverage check can be fast, easy, and one of these smartest ways to protect and even improve your property's cash flow.

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getting financing in order? I am actually a bigger fan of starting with the properties, like, getting leads. Doesn't mean you have to buy the properties, but I think nothing fires me up anyway than like getting, making it real. When I see a property in front of me, even today, after doing this for 15 years and buying multifamily for like 15 years, I still get excited when I like pull up realtor.com or Zillow or I get a listing from an agent and like there is, you know, a like triplex and I'm like oh great and there's the numbers and I can run the number and I can know like I just love that piece of it so I like to start with getting leads and there's two sides of leads there's on market and off market when we're talking small multifamily or large like you can

you can get deals that are listed for sale through a real estate agent or you can get deals that are listed that are not listed and you go and actually hunt down those sellers and I would argue small multifamily is this really sweet spot where there's a lot of people who own them who don't know what they're doing. Like, it's very common, right? So they may be inherited the property from some relative. Their mom and pop, meaning they don't, they're not professional managers.

They don't know what they're doing. They're difficulty managing. Small multifamily tend to attract, and I don't want to generalize, but I'm going to generalize. They tend to attract a lower income type of tenant. And lower income tenants tend to be a little more difficult to manage. It's one of the reasons I like it because I like solving problems

and I like being good at something that most people are bad at. So small multifamily is like, there's a lot of people who own it and they struggle. So the reason I think off market is such a powerful way to get deals in the small multi-space is because these people don't even know that they have a problem until you contact them. So again, you can get a real estate agent and they can help you find small multifamily properties. There's tons of duplexes, triplexes, and fourplexes and five, ten units on the MLS.

Those are all over. But if you want to go real in depth and getting really good deals, go off market. I'll give an example. My fourplex that I bought for my daughter Rosie. You guys have heard that story before. I bought a four-unit property for my daughter, Rosie. We remodeled it. We did the birth strategy with it.

I pulled out my cash. And now it's set up to be paid off by the time she goes off to college. That property makes me over $1,500 every single month in just pure profit. I can spend on whatever I want, what I call pure cash flow, which is awesome. But in addition, it's going to be paid off by the time she goes to college. So now it's going to pay for her college education. I got that lead off market doing something that we, all called direct mail marketing. I'm sure most of you know what it is. It's in a lot of my

real estate books, but it's also talked about in the multifamily millionaire. But this idea of off-mark, and that's like one of many strategies that we talk about for off-market deal finding. And again, small multifamily property is this great spot that's too big for most homeowners to go and buy because they all want a cute house in a cute kitchen and a cute front porch for their 2.1 cute kids. And it's too small for the big guys. Brian and I didn't start open door capital to go punt down four plexes and eight units. Right. So like the level of like machine power that Brian and I have built it up in our capital, we're not hunting for the five unit properties, really. And so there's this really cool sweet spot

that you can find great deals and get leads by going off market in that space, which means you're listening to this thing. You can find some awesome deals. Anything you guys want to add on that? Yeah, I would go so far as to say from a process standpoint, if you're going to pick one area that you want to like have as your superpower or just knock the ball out of the park, it's generating leads. because if you can find those deals, and that's what I love, Brandon, you know, there's so many great tips in the book that people can take away to, like, find those deals. And both in volume one and in volume two, you know, whether you're looking for small, multifamily or large, I mean, it's just chock full of ideas. And that, that's one way to really set yourself apart and get other people's

attention. Yeah, the point I would add is when people are trying to figure, do I want to go off market or on market? The analogy I like to use is it's like saying, do I want to go catch a fish? of the river or do I want to go buy a fish at the store. It will be more expensive if you buy it at the store, absolutely, but it will be more convenient. And that would make more sense if you don't have fishing skills. Some people love fishing so much that they just want to go catch the fish. And it doesn't even matter that it's cheaper, but they enjoy the process, like what Brandon was saying, right? And other people love real estate, but they hate fishing. They don't want to have to like a fish. They just want to go buy it right out of the store. The problem I find people get into

is when they want the price of doing it yourself with the convenience of going to the store. just can't make that work. You have to understand whichever road you choose has its own pros and its own cons, make peace with that, work with it, as opposed to trying to say, well, how do I get an off-market deal with the same little amount of work as if I could just go on market and I could find the property? You guys see any flaws in that perspective? I love the analogy. All right, cool. All right. So the next step here, once we've got leads, this kind of follows your lap funnel, Brandon. It has to do with making an offer and negotiating on that property. What can I expect to get out of your book when it comes to teaching me how to make an offer and how to negotiate.

Yeah, good question. So, yeah, make it an offer is something that so many people are afraid to do. They're like, it's kind of terrifying, right? Because now it's commitment. Now, like, now you're really into the thing because now you got earnest money and now you got all this other stuff in place. So anyway, so point being how you make an offer, I would say depends on how you got the lead. Is it on market or off market? So an on market, meaning you have a real estate agent, the seller has a real estate agent. Your agent's going to, help take care of the whole offer. In fact, this is one of the main reasons why I think almost every new investor, especially if you're getting a multifamily, get an agent who understands real estate investing,

who can help you with the process. I don't care if you're not going to hit a home run, and that first duplex or triplex, fiveplex isn't going to be a home run and knock it out of the park. It's okay. It's just really helpful to have a guy like David Green going, uh, watch about this thing and hey, you know, this is, this is a good lender or here's a little gotcha that they put in the contract. It's super helpful to have that. And I will all day long encourage new investors to sacrifice a little bit of like a home run for the base hit just getting into the game. I know, David, you said the same thing many times. That's a great, great point. You're not good at anything the very first time you do anything. So just make peace with that.

And your basic goal is like, how do I just get on base? How do I not get hurt really bad? You're not going to knock the person out in your first punch of the whole fight. Now, you could get good enough to where eventually you do that. Like, I think Brian's at that level. Brian's got enough experience that he can pick and choose his battles and he only swings at pitches that are going to be a home run for him. But you get to that point. You don't start at that point. Yeah. And in fact, I probably should have added another tip in here, but I will say this. And it's related to making an offer. And if you've been on a bigger pockets webinar with me ever, you know what I'm about to say. Every property has a number that makes it a good deal. Every single property out there has a number, no matter what it is. Now, that number could be negative in some cases. But every number, you could always work backwards from whatever you. your crystal clear criteria has for profitability, like, hey, I want a 10% return or whatever your number is, every property has a number that you could figure out what purchase price you could pay for

it. It's just math. A lot of people get freaked up by this idea of making an offer. So I would first say, like, get really good at the analysis side. And when it comes to small multifamily properties, like in the book, I walk people through the four square method on how to do that. I walk people through exactly how to run those numbers. But you could also, you know, use bigger pockets calculators. They are designed for single family and small multi. I'll be the first to admit, the bigger Pockets calculators are not good if you're trying to buy a 75-unit apartment complex with syndication and a 70-30 split in a waterfall, right? Like all that, you're going to want to read a book on multifamily large scale like the multifamily millionaire volume two, because that's more in-depth.

But bigger pockets calculators are great for the small stuff. So just get that number. Get good at that part. And once you're so confident with analyzing a small multifamily and knowing exactly how much you could pay, it takes so much of the fear out of making that offer and, you know, So anything you want to add on that, Brian? I think the only thing that, you know, I'd add is just this is another example of where small multifamily and large multifamily and your approach to, you know, negotiating, extending offers is a very, very different process. So you're going to find when you go through volume one, you're going to read one process.

When you get to volume two, you're going to realize that things are done entirely differently. I'll just throw that out there. All right. So I've read your book. I've made an offer. I successfully negotiated this thing. I'm happy. I go give a review on Amazon because I'm so grateful for what Brian and Brandon taught me.

Now I'm married. Congratulations. And I get to start the fun part of real estate investing. Not. It's the management, right? This is the part where everybody tends to sort of lose steam when it comes to, it's always fun to hunt the animal and you've got it. And now you've got to clean it and continue to do so.

So what advice does your book give me on managing the property? Yeah. I mean, one, I have an entire chapter in there, obviously on managing on the managing. on the managing side, but again, this is a split between small and large. If you're talking small, you're probably either self-managing or you are hiring a local property manager. I would actually highly recommend the local property manager instead of self-managing. I think there's a lot of value to self-managing and knowing how to do it.

But I've been saying this thing a lot lately or I've been thinking about this concept. I might even put this in a book someday in its own chapter. But so many times in life, and I think David, you'll like this one. So many times in life, we choose to do things ourselves just because we are avoiding the more painful or outside our comfort zone activity. For example, I think it's a good idea of self-manage. I mean, so I'm going to self-manage. You know, I want to know how to do a rehab. So I'm going to do my own toilet.

I'm going to do my own toilet repair, right? Because we think what we're actually avoiding is the harder work of stepping outside our comfort zone and being a leader and being a manager and having systems and having processes. And so I would just encourage people, if you're going to manage yourself, nothing wrong with that, I still manage some of our own, you know, kind of in-house. We built our own in-house management company. Just understand the difference between avoidance activities because you don't want to be a leader. And do you really want to manage yourself? So if you're going to manage yourself, great. There are systems. I mean, I wrote what the book on managing rental properties is all about managing rental properties. And there's, again, in the multifamily millionaire, both books have

instruction on how to manage. But management really comes down to having policies in place and then holding everyone accountable to those policies. Like all of property management can be condensed down to those two things. Have policies and hold everyone accountable to them. It's so much easier when you do that. Like it's the expectations things, David, you already talk about, I always talk about. If you set the expectations first, this is what it looks like between a tenant and a landlord.

and then you hold everyone to that. There's no surprises. There's very little drama. It's just it is what it is. And it's very much a business. It's when you start treating property management like a hobby or like you're renting your better amount to your buddy instead of a business. That's when things get rough and things get hard.

Anybody who ever tells me horror story after horror story of how much it sucks to be a landlord, I always know it's because they didn't treat it like a business. Always. Now, I'm not saying there's not hard times in owning a property. But if people are just complaining over and over and over and over, about how much it sucks and how this tenant hasn't paid rent in nine months. And this tenant's bad.

And this one had to be evicted 12 times over. It means your systems aren't good enough. I still have evictions, but I don't whine about it because that's part of the business. I expect it. I manage my expectations. I know how to deal with it. And so property management is actually fairly simple when you do that. What do you guys think on that?

I think there's pros and cons to both, right? So what I love is, I mean, volume one goes into both, right? It tells you how to hire a property manager. And it also tells you it's got a ton of. on tips on self-managing. But I think what's right for each person is different, right? So totally agree that for some people, you know, you're better off getting a property manager, but for others, they may be better suited to try to do it themselves. There's certainly benefits. If you can pull it off, if you've got the time and the inclination and the skills and you,

you can do that self-management, you're going to save yourself money, assuming you don't make any massive mistakes, you know. So I think if you read volume one, you'll understand a little bit more about pros and cons of each. And then you can look at your own life, your own skill set, your own motivations, and say, yeah, what's right for me? But certainly as you grow and you get bigger, you know, self-management. I mean, you're basically starting up an entirely separate business that's outside of real estate investing. And basically, if you're going to do that, you're growing two businesses at the same time. And that can be very demanding. And so by time you get to those large properties, you know, in volume two, we're assuming you're using.

third-party management because otherwise you're building a massive business as a side business that's actually completely separate from being a real estate investor. It's a great point and that doesn't just apply to management. That could apply to rehab work, okay? I don't want to buy a property or I bought one. I don't want to pay someone to do this. I'll put the flooring down. Well, if you know how to put down flooring, that's great if you choose to do it. But if you don't, you're now learning the construction business. And there's a lot of things that go into that. The picture you painted in my head, Brandon, when you were talking there, would be Brian's example of you need to know the bullseye what the target is if you want to hit it.

So I started imagining a bowler who's like, okay, those pins at the end of this alley, that's what I'm shooting for. And the commitment we talked about is sort of like how much emphasis are you going to put on that ball to get it to roll all the way from where you are to where the pins are. Because if you don't knock down a pin, it doesn't matter if you got three quarters of the way there or one quarter of the way there, the result was the same. The standards we talked about are sort of the bumpers that you put in the gutter. your decision, your investment can wander, but the standards were always bounce it back to keep it in the lane and eventually it will hit the target. And when we relax on our standards, that's when the ball can fall off, go in the gutter and will never hit the target. That's really good, man. And you mentioned standards.

So in the book, I talk about something called the five-star tenant in the chapter on self-management, or basically say, like, there's a way to determine, like, there's a way to set standards for the type of tenant you attract. I mean, I got, I got requirements for income, for job stability, for rent history, for credit and for like criminal background like that's what makes a five-star tenant and if you want an easy job managing tenants just make sure you get a five-star tenant but that's not the only thing the other thing is becoming a five-star landlord and this is what most i think most books and conversations about landlording miss is it's always about how bad the tenant is and how you find the right tenant they're a good tenant but so much of landlording is not about the tenant it's about you as a landlord so that's why i go into like the five points, just like five for the tenant, there are five things every landlord

should be the type of landlord you are. And if you can nail all five, like five star landlord things, it's so much easier to manage properties. And then when you get into hiring property managers, it's so much easy to control your property manager because you just understand how the business works. And you can see, oh, that's not a five star property manager. That's a four star property manager. They're missing that fifth thing. Or, you know, it's all about like, again, having those expectations met for the landlord and for the tenant. And when you do that, everything's a lot easier. So anyway, next step.

So I am sold on looking for leads and I found the property and I have confidence that I know how to write an offer and I will negotiate. So I'm ready to go. Brendan, where am I going to find the money to buy this thing? That's a good question. There's a place called a bank. And if you go in there and rob it, you can make a lot of money. Other than that, yeah, let's talk about, again, this is a massive difference between small

and large. Well, maybe not massive. There's some cross-over there. But I'll say there's a difference there. When it comes to small multifamily, first of all, if you're just getting into it, I highly recommend considering house hacking. I know, David, you preach this to the ends of the earth. I preach to the end of the earth as well. The beautiful part about small multi, and when I say small, and this, when we're talking with financing, I'm talking about two, three, and four unit properties. That is considered residential. When you go into a typical bank, a lot of people don't even notice this, but there are two, there is a left side of the bank and a right side of the bank. Not always, but very common. And the one side is for residential stuff and one side is for commercial stuff. So one side of the bank has all the people doing bank loans and like for houses and cars and that side of things. The other side of the bank, and again, it's not always separate sides, but a lot of times it is, they're dealing with business loans and commercial real estate and all that. So again, four and below is on the residential side. Five and above is on that side. So if you're in a house hack, or if you're even just going to buy a two, three,

or four unit individually, you're going to use the residential side. The benefit of house hacking, though, is the FHA loan or the other conventional loans where you can get a loan for as low as three and a half percent down or really zero down if you're like a military veteran or you live in the middle of nowhere and you want to use a USDA loan. But you can get these loans for like three and a half percent down. Live in one unit, rent the other ones out. So one of my favorite strategies and I hear about it all the time and I mean, I've done it, is where you live in one unit, rent the other three out. You buy a fourplex, live in one of the units, rent the other three out. Now you're living for free, maybe making money in the process, and you're getting like training

wheels to be a landlord. So from financing, if you can house hack it an FHA loan, what an amazing way to get started in real estate. And because now you're living for free, you can put a lot more of your income towards buying other multifamily in the future. Just a great like jumping off point. But that's not the only way to do it. You could also just get a normal loan. You could go through the bank process put down 20 or 25% down and go buy that fourplex or go buy that eight unit with a with a normal loan typically on the residential side the one two three and four unit properties you can get 30 year financing which means we spread our loan out to 30 years which is awesome but on the commercial side obviously and we'll talk about that more in the next episode

the loans are a little bit different so uh something to know about there anyway and there's also creative stuff sorry i was going to say there's creative stuff too i mean i wrote a whole book on creative strategies, but I put a bunch of them into volume one of the multifamily millionaire, like some of the creative strategies that work well for the small deals, things like seller financing and lease options and all that. We should highlight, I think a lot of people hear house hacking and assume it's what Brandon just said. Buy a triplex live in one unit, run out the other two. That is house hacking in the multifamily model, but house hacking is a more broad term that can be used. You can house hack single families. You can house hack single families in different ways, right?

You can rent out rooms. You can rent out an ADU. It's more of a principle of renting out a part of your property than it is a just buy a triplex and do it this way. But I do think multifamily is, it's sort of the easiest way of every way you could house hack as far as the least amount of work required from you and the simplest to accomplish. Most spouses are more okay with having somebody in an ADU or like a separate part of your house or downstairs or upstairs than having them in the bedroom next door to you.

Like it's difficult to convince your wife. hey honey let's go have a random stranger moving to the bedroom next door to us like that's weird right but buying a duplex and having them live in half of it most not most maybe most most most spouses would be like okay i understand the sacrifice for this but it's not that big a deal i mean i literally do it here in a two million dollar property in maui which is a which is something i should say it's not like when people think house hacking or buy a duplex they think crap property they think i gotta go buy some dumpy declass property in a declass area and my tenant's going to be doing meth out of my garage Like, you're that, like, I live in a super stupid nice house in Maui with an ocean view and pool and all that.

And Ryan Murdoch, one of my partners at Open Door Capital, he's in the back. Like, he literally rents from me back there. And then I got a downstairs area that I rent out. And so get that out of your mind that house hacking has to be a dirty thing. It's very much, there's nice properties with extra units or ADUs or whatever that you can live in and reduce your expenses. Doesn't mean you're living for free, but you can live cheaper. So, yeah, house hacking is a great way. So, Brandon, there's four chapters.

I thought I should share with everything. It's actually four chapters in volume one on how to finance. And what I love about that is completely dispels the myth or that obstacle that so many investors cite to say, you know, if I don't have a lot of money, I can't start investing. Right. So there's creative financing opportunities in there. There's the ones you just mentioned and there's others. And I mean, anybody who reads those chapters is going to realize they have so many different

ways that they could approach it and actually get that. first property financed, even if they don't have a lot of money. All right. Well, I think that stops a lot of people from moving forward. So I'm glad you guys put in some content, a chapter on this financing component. Because just the other day, two days ago, I was at my chiropractor's office. And he's a little bit younger. He just got out of medical school or what they go to.

And we're talking about houses. And I said, you know, you could buy a house for three and a half percent. And he said, you know, I don't mean to offend you, but that just seems too good to be true. That's got to be a scam. I was like, still, right, doctors are still thinking along. these lines. So if you're listening to this and you're thinking, I don't have enough money, my credit is not good enough, whatever, contact a mortgage broker and let them tell you if that's the case. You know, one more thing I do I want to put out there is one of the chapters in the book is

on partnerships. And I don't want to go into it in depth right now. But if you guys know me, you know I love partnerships. One of my very first properties with a triplex. I didn't have the money for it. I brought in a partner. So in the book, I talk about something called the kite method on how to attract like unlimited private money and partners to invest with you. So like if you follow like the right principles and guidelines like on how to get other people to partner with you, you can literally build a massive empire using none of your own money. Like it's totally doable. And then there's like the birth strategy we talk about in there as well.

So all that is like doable. So yeah, like Brian said, dispel the myth that you have to have a lot of money to get into multifamily. It's just not true. All right. Moving on. What is the next step after it comes to financing and managing the property? So we talk about managing, talking about financing. So last thing really step number seven here is I wrote down.

wrote rinse and repeat. And what I mean by that is once you get one done, once you got your first multifamily, suddenly becomes a whole lot easier. And then you can do another one. And then another one. And some people will stay that level. They'll buy a fourplex and then a threeplex and then a duplex, whatever. They stay small and there's nothing wrong with that. You can get, like I said earlier, the subtitle of the book, you can achieve financial independence by investing in those small deals. I mean, like I said earlier, I got $1,500 a month coming in in profit, in pure cash flow from one small multifamily property that I own. So I'd ask you this, like everyone listening right now,

how many of those properties, or even if you got one that was half as good or is quarter of as good, how many of those would you need to be able to quit your job? It's not as many as you might think. And that's why I think multifamily is the path towards financial independence.

Now, if you want to get wealthy, if you want to become extremely wealthy, that's when you're going to want to scale up. And this is the final point I'm making and then we can move on to part two of this and you guys can listen to the next episode. but the great part about small multifamily, my favorite thing of all is that it's a gateway to the larger deals. Once you master the small stuff, you buy that duplex, you buy that fourplex, you build your confidence,

your knowledge, your experience, all that. And so then you maybe take on a five unit or a seven unit or an eight unit. And then you do that one and you're like, oh, this isn't so hard. You expand your mindset. And then maybe you buy a 15 unit or a 20 unit. And you're like, hey, I'm kind of getting the hang of this. And then you buy a 40 unit. And now people are saying, well, I don't have the money to buy a 40 unit.

Again, we talk about that in the book, and we've talked about it today. Dispel that myth. Because now you've got momentum on your side. And that's the thing people don't realize is once you start getting into the bigger deals, you've got momentum. You've got a lot of people out there who want to invest their money in your deals. And if you know how to pitch them right, you can scale up pretty rapidly. And that's when you make that shift to the larger deals.

So the analogy in the book I use is this. Super Mario Brothers. You got to remember Super Mario Brothers, the original Mario Brothers on Nintendo, right? My favorite game ever. So you start on level 1-1. and then you go to level 1-2, and then 1-3, and then 1-4. And at the end of 1-4, you go to level 2.1, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 2, 4. And there's 8 levels, each with 4 of these sub-worlds.

So, in total 8, 8, 8, 8, 16, 32. There's 32 levels in the game. But there's this cool little hack, for those who are good at Mario Bros. Remember, there's these little secret vines. Like, you hit this, break this block, and this little vine starts drifting upward. And you can climb that beanstock up into the clouds, and then go to these warp, these little warp tubes. And you can literally jump from level one to level three to level eight.

So when I was younger, I could beat the entire game of Mario Brothers in eight minutes. Not even kidding, eight minutes for the entire game. The way that I did that is by doing these warp things. They're jumping from one level one, three, eight. That's what multifamily lets you do. You don't have to buy a house, then another house, and then maybe a small deal. You can jump from level one to three to eight. And by the time you get to level eight, let me just tell you, it's so good.

Like, I bought more properties. And Brian, you're probably on this thing too. We bought more units in the past year, you know, including the ones that we're now closing on here shortly, then my entire career 15 years combined. We're buying more in like this one. In fact, we got more properties under contract in the last three months than my entire career combined in number of units because that's what it's like when you get to that next level.

And that's where we lead into volume two of the book is how to grow that and how to scale that business. what does level eight look like. So anything else you want to add on that before I kind of move to the close? No, Brandon, one of the concepts that you go over in the book is the stack method, which I think is fantastic. And that's really what you're talking about here, right? I mean, so I don't know if you want to share a little bit about the stack method.

Yes. I mean, it's basically that concept of you buy a small property and then you buy a significantly larger one and then a larger one. And like, let's say you bought a duplex this year. Next year, you bought a fourplex. Then a year after an eight unit, then a 16 and then a 32. At the end of five years, if you just doubled each year, you're never going crazy. You're never going from zero to 100. You're just accelerating exponentially.

And so the beauty of that is, again, you're never going crazy. You're never like going super risky. You're building knowledge, confidence, motivation, momentum, the whole way. But within five years, you can have enough properties to quit your job. Maybe in three years. I've seen people do it in two years. And that's the power of multifamily. So that's where the stat comes in and there's a whole chapter on that and there.

And I love that concept. And that's where the later parts of the stack, you start just rapidly growing your portfolio to the point where you're making millions of dollars every year in cash flow or in equity. And over time, that just gets better. So, yeah, I love this stuff. Multi-family is so fun. We can tell the passion you have is clearly coming across the mic, Brandon. I think this is, you're making me want to read this book. That's called dominating.

Okay, good. I'll send you a copy. I might even sign it for you, David. You never know. I will say this. You didn't ask me to say as one of the said anyway. Yeah, if you want to get the book, go to biggerpockets.com slash multifamily book. You can get both of them there.

And when you buy both of them, you get a bunch of cool bonus content. So we're talking less than 60 bucks. We did a bonus chapter called How to Bypass small real estate investments and start your journey with large multifamily. We did something, Brian wrote a super good white paper on investing in a post-COVID world. We did that thing you mentioned earlier, Brian, where we talked to my performance coach, Jason Deerees. The three of us sit down and talk for an hour about the.

the mindset, how to shift your thinking and 10 extra results. And then we did a two-hour video with Ryan Murdoch called No Money Multifamily. It's on how to do multifamily with no money. And then another video I did with two of my guys from Open Door Capital that work with me and Brian who are both getting into their first small multifamily deals. So Mike Williams and Micah Cabag bag, both talk about how they've gotten small multifamily deals in a super expensive market. Plus raising money, pitch deck and a bunch more.

So all that you get when you get the books. I think you guys will like it. Again, biggerpockets.com slash multifamily book. You can get it there. Anything you guys want to add on that? Not sure. You could find a better return on investment out there than that. That's the same thought I had, Brian.

That's so funny. You said that. For 60 bucks, could you get a higher ROI if you get able to- Sorry, sorry. I almost forgot. I did a four-week class also on multifamily where I broke down like between an hour and a half and two hours each of those four classes. I did the whole month of June, sorry, July.

The whole month of July, I did this class. And I recorded it. And if people buy it also the book before the end of August, they also get access to those recordings. So that's more like seven more hours of content. So just keep that in mind as well. That's only available if you buy it before the end of August. So sorry, I didn't mean to cut you off there. But I thought that was pretty important to mention.

We are going to have another episode of multifamily millionaire where we are getting into the large multifamily stuff, sort of the stuff down Brian's Willhouse. And of course, Brandon is going to weigh in on what he thinks. So I want to thank you two both for this is a long episode. you give away a lot more content than I thought we were going to do. That was pretty cool. I think I want to read that book more than I thought I was going to want to read it. I already do some multifamily property. And now I want to see what you guys have to say.

So thank you guys both very much for being here. I am going to go ahead and wrap this one up. And we are going to get to Brandon reading chapter one of his book right after this. So thank you guys both. This is David Green for Brandon the Dominator Turner. Signing off. Hey, everyone is Brennan. So I'm going to be recording here and playing

for you the chapter one of the multi-family millionaire volume one. Of course, that's volume one out of the two-volume set that we're releasing at BiggerPockets.com slash store this week. And so just an FYI, the actual audiobook version of the book, which is also for sale right now at BiggerPockets.com slash store. That version is not me reading it. We hired someone who actually knows how to read well, and they're going to be doing that. But I wanted to read this one to you, just give you a taste, a tease of what is to come inside the book. I think you're going to like it. It would mean the world to me if you picked it up. Again, BiggerPockets.com slash store. But take a listen. See what you think. And if you think this is something that you could learn and grow from, take up both copies,

volume one and volume two. Volume one is more on small multi. Volume two is more on large multi. And yeah, support me, bigger pockets and better your own future by learning about multifamily. So with that said, let me jump into reading chapter one of the multifamily millionaire volume one. There are a lot of ways to invest in real estate. such as buying single-family houses, storage units, buying office buildings, mobile homes, flipping houses, skyscrapers, large apartment complexes, small, multifamily real estate. You know what? There are many highly successful people in all of these niches.

That's the great thing about real estate, the plethora, the plethora, I like that word, of choices. But that's also the dangerous thing about real estate. There's so many choices. You know, as business author Seth Godin once said, in a world where we have too many choices and too little time, the obvious thing to do is just ignore stuff. When faced with the hundreds of different paths

that one can take to build a life of wealth and happiness, many people simply ignore them all. They give up on their dreams, they go back to doing what they know, watching television, eating bad food, and hoping the government takes care of them in the few years between retirement and death. But not you. I mean, after all, you're reading a book on buying

small multifamily real estate. So the topic obviously pulls at you, and for good reason. Multifamily real estate is one of the greatest investment. someone can make, and one of the best ways to begin building serious wealth and long-term income. This book is designed to help you do just that. Hey, but first, let's get on the same page. Defining multifamily properties. Multifamily, multi-unit, multi-dwelling unit, apartments, complexes, flats. Look, there's many different names, but they all refer to a type of real estate that will just call multifamily throughout this book and volume two. A multifamily property is a singularly owned property that

contains two or more residential housing units. Each residential area contains at minimum a bathroom, a kitchen, and some place for a bed. Multivamily, therefore, could refer to a 500-unit apartment complex in the suburbs, a duplex in the city, or a fourplex in the country. Multifamily properties come in all shapes and sizes, large buildings, small buildings, even separate buildings on the same lot. In fact, my first multifamily property, the one I actually mentioned in the preface, contained two single-family houses located on one city lot,

separated by a driveway and some dirt and grass. I also own a three unit and a four unit with similar setups. Additionally, I have a five unit that is located in one giant square building. And there's a triplex that I bought with one unit upstairs and one unit on the main floor and then one in the basement with completely separate vacation rental unit in the backyard. Or take, for example, the property I own that contains 50 different mobile home units, each home independently owned by a resident, but each lot that the home sits upon is owned by me. or the 126 unit apartment complex,

Brian Murray owns in New York, or the house my friend and business partner Ryan Murdoch owns that was once a large single family house but it's been carved up and remodeled over the past 140 years and now it houses four separate families. As you can see, multifamily is a broad niche. To cover the full spectrum of opportunities and provide as much value as possible,

we're going to divide multifamily investing into two tiers. This book, Volume 1 of the Multifamily Millionaire, with writing led by me, Brandon, focuses on what we call small multifamily real estate. Volume 2, with the writing mostly led by Brian Murray, focuses on what we call large multifamily real estate. But that begs the question, what is large and what is small? Well, oftentimes, people draw a simple line between small and large properties, four units. They consider anything with four units or fewer to be small, anything five units or more to be large. And when it comes to lending, they're not wrong.

I mean, you'll learn later in the book, getting a loan on a single-family house, duplex, tri-pix, or four-plex is different than getting a loan on anything with five units or more. However, aside from financing in the real world, buying a four-plex is not all that different from buying a five-unit property. But buying a 200-unit property is very different from buying a four-plex. So where do we draw the line? We want to make sure that someone reading this book is equipped to buy a five-unit, an eight-unit, or even a 20-unit if they want to.

Because it's not that difficult. You can do this. even if you're just starting out. Rather than making a strict distinction between small and large based on the specific number of units, we have decided to draw a softer boundary between small and large,

and that's one based on approach. You see, the approach to buying a duplex is not that different from the approach to buying an eight unit. They require very similar processes, people, and skill sets. Now, there are many different processes, people, and skill sets involved

when buying a 200-unit apartment complex. That type of purchase likely involves tens of millions of dollars and expertise of a team of professionals, which much of the work taking place around long mahogany tables. In practice, investing in large apartment complexes is much more akin to buying, owning, and selling a business. Quarterly meetings, quarterly returns, hierarchies of employees, fundraising, webinars, mission statements, and business plans. Now, we're certainly not saying large multifamily isn't within reach for small investors who want to go big because it is,

but it requires a different approach. Patience, Grasshopper, we will get there in volume two. Now, purchasing a duplex, a triplex or something similar, on the other hand, that's a much simpler process. You'll be likely using your own cash or a bank loan, a partner, some other more creative method to finance the deal. You'll be managing the property yourself, or maybe you'll hire a small local property manager to assist.

You're likely not going to be forming companies inside companies and the property is going to likely be in your own name or perhaps in one LLC. Small multifamily real estate investing is something an individual can do independently with the help of some various independent contractors like a title company or an attorney or a property manager that they're brought in to handle specific aspects of the job. Now, to help clarify how that differs from large multifamily real estate, I'm going to give you a side-by-side breakdown of some of the differences between investing in small multifamily real estate, which we're focused on in this volume, and large multifamily, which is in the

focus of volume two. Now, if you are reading the book, you would see a side-by-side chart, but I'm just going to go read left to right, left to right, left to right. That'll make sense here in a second. Basically, small and then how large compares with that. So small multifamily, likely financed by a bank, a local bank. Large multifamily, likely financed by large commercial lenders with assistance of mortgage brokers. Small multifamily, the down payment's probably self-funded. Large multifamily, the down payment is probably funded by raising money from investors.

Small multifamily is typically managed by owner or small local property management, and large multifamily is typically managed by large third-party property managers with on-site staff. Small multifamily usually is local, though long distance is entirely possible. With large multifamily, long distance is usual, but local is possible. Small multifamily, the owner likely knows that most of the tenant's names. Large multifamily, it's very unlikely that the owner would know any of the same. tenant's names. Small multi-family, the repair work is done by the owner or some handyman hired by

the owner. Large multi-family, repair work to units is done by contractors or on-site employees. Small multifamily, property rehab is performed by the owner or local contractors who handle these small-scale rehab projects. Large multi-family, the property rehab is performed by contractors again who handle the large-scale projects. Small multifamily properties, the bank's decision on whether to fund it is typically based on the owner's borrowing strength. This is important. Large multifamily, the bank's decision on whether the fund is typically and mostly based on the property's business strength.

Then the small multifamily, the owner usually is involved in the day-to-day operations of the investment. With a large multifamily, the owner is usually not involved in the daily operation of the investment. Now, of course, these are general guidelines. It's entirely possible to see the owner of a 200-unit apartment complex show up in overalls to do their own work. It's also entirely possible to see the owner of a duplex in a suit and running their business entirely as a business without ever engaging in the daily operations of the property.

However, the distinctions above tend to hold true. So that's where we've divided our coverage into the two volumes accordingly. Will the information in this book help you invest in duplexes, triplexes, fourplexes? Definitely. Will it help you take down that 20 unit you've been driving past for years? Absolutely. Will it help you raise $6 million in a 506C Reg D fund with a 6535 LP-SP split in an 8 to 50. percent tiered waterfall for distributions.

Eh, for that, you're going to want to read Volume 2. Let's start here anyway. This book will give you the foundation. The lessons you learn in this book about small multifamily real estate will give you the tools, knowledge, and confidence to eventually move into the big leagues if you want. And of course, you don't have to move into the big leagues. Maybe buying in a giant apartment complex doesn't even sound appealing. That's totally fine by us.

You can build massive wealth and financial independence, not only for yourself, but also for your children and their children just by effective. buying and managing small multifamily real estate. This book will show you how. Eight reasons to love small multifamily real estate. We titled this two-volume set, The Multifamily Millionaire, because we believe multifamily real estate

is the greatest way for the average person to become a millionaire. It's that simple. Millions of people for generations have become millionaires thanks to real estate. Even people with less intelligence, fewer connections, and less capital than you, they're doing it.

There are far too many benefits to invest in small, multi-payment properties, to list them all here. So I'm just going to highlight eight of our favorite. Number one, cash flow. Let's play a quick great school math game. Becky sells cookies. She earns $10 at the bake sale. Go Becky. But Becky had to spend money on baking supplies.

In total, she spent $7. Therefore, how much profit did Becky actually earn? Three bucks. That's Becky's cash flow. It's the profit earned after paying all of the money. the businesses bills. Becky's cash flow is hers to spend on whatever she wants. The same is true for your cash flow, and it's one of the reasons we love small multifamily real estate so much. It offers the opportunity to earn a lot of cash flow. When purchased at the right price,

which you're going to learn to do, and managed correctly, which you're going to learn to do, small multifamily real estate tends to generate substantial monthly cash flow. Collect enough of these properties, and you'll be able to quit your job sooner than you ever thought possible. It really doesn't take that many to give you the financial resources to live an incredible life. It just takes the right ones. This book is going to teach you how exactly to find, buy, and manage the right ones. Now, second benefit to love multifamily real estate, simple and low-cost financing. Now, a few minutes ago, I mentioned that when it comes to lending, banks and lenders tend to draw a line between small and large multifamily properties. So let's discuss that a little bit more here.

properties with one, two, three, and four residential units are generally covered by a field of lending known as residential lending. While properties that have five or more residential units like apartment complexes, they're covered by commercial lending. Now, although both types of lending provide a similar service, loans that allow you to purchase real estate, there are some minor and major differences between the two. Residential lending offers usually better interest rates, less money down, and longer terms. Additionally, commercial loans often contain a provision known as a balloon, which means there's a date that the entire loan's remaining balance has to be paid back, regardless of how long it's spread out over. For example, let's say you have a 5.5% interest rate on a $100,000 commercial loan, and let's

say that's spread out over 25 years. So if you do the math, your monthly payment would be roughly $614. However, even though that loan is spread out over 25 years, you might have a seven-year balloon payment, meaning the entire remaining balance of the loan is due at the end of year seven, even though the loan hasn't been paid off. This would require you to either sell the property or refinance it, which means to get a new loan before that deadline. Now, residential financing, on the small multifamily side, the one to four units, tends to be much more simple and straightforward, not to mention cheaper than commercial financing. Thus, another benefit of small multifamily

real estate investing is the ability to obtain that residential financing, as long as your unit has four units or fewer. Now, third reason to love small multifamily real estate, the abundance of opportunities. Most markets contain small multifamily properties. And as a result, you aren't necessarily looking for a needle in the haystack. In fact, in Chapter 4, we're going to lay out seven different types of small multifamily properties that you can look for, including monster houses, cottages, and up and downs. Of course, some locations tend to have more small multifamily properties than others,

but the bottom line is you can invest in small multifamily properties just about anywhere. Number four, less competition. Although you can find multifamily properties in almost any market, most real estate buyers, they're not looking to buy a small multifamily property. Most of them are looking for single family properties to call home. They aren't concerned with cash flow or other financial metrics. Logic and math play second fiddle to the emotional draw of a cute kitchen, a cute front porch, and a cute street for their cute kids to play in.

Therefore, when you invest in single, family real estate, you are competing with buyers who will pay more than they should because emotion tells them to. Emotion is tough to compete with when you're trying to find good investments. Now, it's not to say single family houses never work as investments. However, the competition for those that do, they can be fierce and it can force investors to focus on off-market acquisition strategies and big major rehab projects. Now, although you'll face significantly less competition when shopping for large multifamily properties, that competition will be much savvy. year. On the big deals, you're going to be going up against teams of well-trained, well-financed,

well-educated professionals. Now, small multifamily, what we're talking about in this volume, is wedged between those two highly competitive sectors. Armed with the knowledge in this book, you'll be perfectly positioned to take advantage of this real estate sweet spot. You'll be savier than the average person who's shopping for a home, and you're going to be looking to buy deals that are simply too small for the big professionals to consider. As the law of supply and demand dictates where there is less competition, better deals can be found. Those lucrative small multifamily deals can be your ticket to financial freedom fast. Now, the fifth benefit of small multifamily, the growth potential.

Imagine being able to wake up every morning when you want, not when you have to. Imagine spending as much time as you desire with your kids, with your spouse, with your dog. Imagine not feeling guilty when you go to the gym because you have more than enough time. Imagine working hard on work that you love, that energize. you that allows you to take bigger risks. Never again will you have to watch the clock waiting for the small break your office allows. These are not pipe dreams.

This is real life for Brian and me. And for millions of other people who have successfully invested in real estate. Maybe your idea of financial freedom is different, but that's the best part about financial freedom. You get to choose. Let's be honest. You'd like to have financial freedom,

however you define it, sooner rather than later, right? Now, whether you love your job or you want to quit tomorrow, it doesn't really matter. The freedom to choose how to live your life unrestricted by the conventional need for money, sounds pretty amazing to most, pretty much everyone.

And here's a thing. With multifamily real estate, you can get there faster. When you invested multifamily real estate, your portfolio grows more quickly than it would if you were collecting single family houses. Yet the surprising truth is that it's not twice as difficult or expensive to buy a duplex

versus a single family house. It's not four times as difficult or expensive to buy a fourplex versus a single family. In fact, it really takes about the same amount of work. If speed isn't, to you, investing in multifamily real estate will get you to the finish line faster. Now, in chapter two, we're going to delve into a concept that we call the stack, which is perhaps the most effective strategy for scaling a real estate business faster than

you could ever imagine. Stay tuned for that. Now, the sixth benefit to small multifamily, the opportunity to buy from bad, burned out, or checked out landlords. People get into real estate for a variety of reasons, and many don't have the same level of excitement as you do. In fact, plenty of current landlords never wanted to be a landlord or they've long since discovered they just don't enjoy it. They may have inherited a property and they have no idea what they're doing or perhaps they bought into the idea that real estate investing was a get rich quick and easy way to make money, but they've been unwilling or unable to do what is necessary to make their investment work. Now regardless of why, many landlords are burned out. The reason is that owning rental properties

is not an entirely passive activity, especially at the beginning. It requires skills, knowledge, and persistence. It may also require that you make some difficult decisions, maybe miss some important events, and continually have to educate yourself on the best practices and legal changes among other things. Now, that doesn't mean you shouldn't take the plunge. I'm not trying to talk you out of it. On the contrary, some of life's most worthwhile pursuits are found on the road less traveled. The easy path isn't always the right path, and the right path isn't always the easy one. Now, we don't say this to scare you. Landlording can eventually become passive, and there are many ways to make it simple and easy. Just like in sports, mastery comes after significant and

continual personal improvement. If you read books, create systems, make and learn from mistakes, and do it all over and go over and over again, in time, landlording becomes easier and even fun. But for the many, many landlords out there who have not put the time into becoming good at their job, it can be hell and cause burnout. Now, one landlord's burnout, though, is another landlord's opportunity. In fact, most of the properties we have purchased over our careers have been from failed miserable landlords. Whether the landlord failed completely and the property was foreclosed on

or maybe the landlord simply gave up and sold the property at a discount to get out from under it, our best deals have come from burned out or neglected landlords. There are many opportunities for the ambitious real estate investor to buy these deals,

turn them around, and make a great profit. Number seven, reason to love small multifamily properties. The house hacking potential. You know, one of the best ways for new investors to get started in multifamily is through a script strategy we call house hacking. So house hacking means that the homeowner lives in one of the units

and rents the other or more units of their property out so they can live more cheaply than normal, maybe even for free. Now, the story I told in the preface of this book, which you obviously have to read the book to be able to read that story, was based on house hacking. The income from the rented units can sometimes cover your entire mortgage payment and more, allowing you to essentially live for free. This is the power of house hacking and small multifamily properties make that possible. Now, why would anyone choose to live in a rental property where they have to live in one of the units next to your tenants? What makes this option so appealing to new investors? Three words. Low, down payment. Now, earlier, we talked about the difference between residential

and commercial lending, including how residential lending tends to be cheaper and easier to obtain. To take this concept a step further, residential lending becomes even better when the borrower is planning to live at the property. In the United States, homeownership is strongly encouraged with the government even assisting to make this dream of reality for people. The government does that through a lending program, or different lending programs, that offer loans with very low down payments. The most common example is the Federal Housing Administration, FHA, loan,

which requires the borrower to put down only three and a half percent of the purchase price. Like on a $200,000 property, that could be just $7,000 down. Now, in addition to the FHA program, many banks now offer conventional loans at just 5% down that have some unique advantages over the FHA program for a slightly higher down payment. Now, compared that to a residential loan for a property that the owner is not leaving in.

Down payments might be 20 or even as high as 30% for non-owner-occupied property loans, meaning that same $200,000 purchase could require up to $60,000 for a down payment. Now, don't worry if you don't have that kind of money to invest in your next property. Later, I'm going to discuss several different strategies for financing multifamily real estate

no matter how much you currently have in your bank account. Furthermore, these owner-occupied loans they're obviously designed for an owner to live in the property, but the owner doesn't have to live there forever. Generally, the owner must intend to live in the property for at least one year. After a year, you can move on to bigger and better things. Go get yourself a nice house. But get this, you get to keep the loan in place.

In fact, after a year of living in that small duplex and collecting rent from my friend that I mentioned in the preface that you got to read in order to hear that story, I moved into another duplex, actually, and I began renting out the first one for an extra $550 bucks a month. Now, 14 years later, I still own that property. and it still continues to provide significant monthly cash flow to my bank account, and it all started with a house hack.

Number eight, gateway to larger deals. We've already established that building a portfolio is important, and the sooner you build a large portfolio, the sooner you become financially free. Therefore, perhaps one of the most important reasons to invest in small multifamily real estate is that those small multifamily deals become a gateway to larger deals. Some real estate personalities advise their followers on social media to never buy a small deal ever. Start with 50 or 100 units, they say. But that's kind of like telling a brand new runner to just sign up for the Boston Marathon. You know, starting with the large multifamily real estate,

that can be dangerous if you don't have the knowledge, experience, contacts, capital to compensate for all the things you don't yet know. When first building a portfolio, you're going to make mistakes no matter how closely you follow the advice in this book. However, would you rather go 10% over budget on a $20,000 rehab or 10% over budget on a $200,000 rehab? The former mistake, $2,000, might make you dip into your savings or spend some nights and weekends paying the house to recover those costs. The latter mistake, so that could cripple you. Now, small multifamily real estate is an excellent training ground for building your empire. It gives you the knowledge you need to ask the right questions on the big deals. It gives you the expertise to walk into a bank and apply for the larger than average

loan. It gives you the credibility to raise millions of dollars from people in your network. It gives you the confidence to make an offer on a property whose monthly water bill is more than you earn in a year. And it gives you the capital to invest in hiring the professionals. who will make up your team if and when you decide to head to the big leagues. Now, let's talk about some small multifamily real estate frustrations. At this point, maybe you're thinking, great. Small multifamily sounds amazing, but what's the catch? What are these guys not telling us?

Well, as most things in life, there are pros and cons. Specifically, we want to point out five primary frustrations that small multifamily investors may encounter, along with some advice on how to overcome them. First, bleeding money. That sounds like a band name. Small multifamily real estate investors often discover that the profit never actually materializes after purchasing what they thought was going to be a fantastic investment. They look at the basic math and say, well, the total rent should be $3,000 a month in this triplex, and the mortgage payment, it's $2,000.

So I'm going to be making $1,000 a month in profit. But where is it? Well, when the projected profit fails to live up to the actual profit, the culprit is almost always the same. Bad math. Plenty of real estate investors, small multifamilyers or otherwise, they don't know how to accurately analyze an investment. So they base their purchasing decision on math no more complex than the above paragraph. So what's wrong with that math?

The problem is, there are many more expenses besides the mortgage payment. So in chapter eight, arguably the most important chapter of this book, I'm going to dive real deep into the world of analysis. You're going to learn the difference between phantom cash flow, which is what that above math is, and pure cash flow, which is the secret to your long-term success in early retirement. In fact, if you all only take one thing from this book, I hope it's that concept of pure cash flow, which we'll dive into. We'll also examine the most common expenses you'll encounter while owning small multifamily rentals

so you can accurately estimate the future profitability of a property before spending a dime on it. Now, the second frustration, we'll call it, about owning small multifamily properties, the property management. Many small multifamily real estate investors are frustrated by the level of tenant management needed to maintain a profitable business. Managing multifamily properties is much more demanding than managing single-family rentals. In my experience,

multifamily tenants tend to have lower incomes than single-family renters, which may lead to issues with consistent on-time rent payments. Your systems must be set up to accommodate slightly more frequent interactions with tenants for rent collections and higher turnover rates. Ultimately, your skill as a landlord will be tested more than when dealing with single-family rentals. Now, this is not to say that there aren't really amazing hardware

responsible tenants who live in multifamily properties. In fact, the vast majority of our multifamily tenants are exactly that. They pay on time, they don't cause issues, and they're a joy to deal with. Still, if the idea of managing tenants worries you, it'll stick with us. By the time you finished the book, you're going to have all the necessary skills to handle whatever situation a tenant throws at you. Number three, shoddy properties. As you begin shopping for small multifamily properties,

you may notice that there are a lot of shoddy properties out there, especially at the lower price point. You see, when an individual owns the home they live in, they usually take extra special care of it. They'll make sure that the higher quality repairs are usually performed when they should be. Now, conversely, a good number of small multifamily properties and landlords, many of them are terrible,

they focus on profit more than quality. The pipe leaking? Wrap it and duct tape. Hole in the wall, fill it with toothpaste. I'm not kidding. Need more space? Slap up some plywood outside the house and you got a brand new bedroom.

Permit? What's a permit? You don't need a permit when you get caught. Look, when you combine the lack of quality repairs with the old age of many buildings, you have the recipe for a money pit. Every time a tenant moves out, and many times while they're still rented the unit, this shoddy work needs to be fixed and it can be expensive. Does that mean that all multi-fim of properties are like this?

Of course not. We've owned some previously well-maintained properties and also made a lot of money fixing up properties that were neglected by prior owners. However, you should always get an inspection before buying a property, so you know what you're getting into. You should also fix up properties as well as you can when you buy them and do quality, long-lasting repairs and rehabs with qualified, vetted repair professionals, and get the permits. This early investment will help guard against ongoing problems. Finally, you should account for the added cost of maintenance when you do your math, and don't worry if you feel like you're not an expert on this yet, you will be.

Keep reading. The fourth frustration with owning small multifamilies is the slumlord factor. If you needed an animal to plow a field, would you choose a workhorse or a show pony? A workhorse, of course. But if you wanted to win an equine beauty contest, I don't even know if I'm saying that word, right? You'd probably pick a show pony. See, the type of horse you pick depends on your goal. Most small multifamily properties are the workhorses, not the show ponies of real estate investing.

You won't be driving all your friends past your properties hoping for their ooze and oz. You won't land a starring role in HGTV either. Now, that's because your small multifamily real estate investment is meant to do one thing. Generate profits. If you're looking for beautiful houses to impress your girlfriend's father, single-family houses might be more up your alley. When you invest in small multifamily properties, get ready for friends and family to joke about you being a quote-unquote slum lord. It doesn't matter how nice your properties are. I still get that joke all the time.

All right. And number five, the fifth frustration. More variable expenses. Another downside to owning multifamily versus single-family properties is the variable nature of some of the expenses, specifically the water bill, the potential, the potentially heating, the garbage, and the electric bill. Now, depending on that property and location, some of those apply, some might not. When you, the landlord, are responsible for paying certain utility charges that can go up and down and be hard to predict. Those expenses have the potential

to negatively affect your bottom line. I mean, we've both, Brian and I, had tenants deliberately not call to report a water leak just because they don't want anyone coming into their unit to repair it. They'd rather have a constant trickle of water costing the landlord hundreds of dollars a month than have somebody enter their home for a repair. The same applies to heat and electricity. When the landlord's foot in the heating bill, it's not uncommon for a tenant to blast their heat all day while leaving their windows wide open in the debt of winter. If they were paying the bill, you can bet they wouldn't be so wasteful. As a multi-family owner, what can you do? Well, there are several options. Our preference is to shift the responsibility for the bill from the landlord to the tenant of every unit,

but sometimes that's simply not feasible. In that case, you'll have to be especially vigilant in watching for leaks or open windows. And by the way, throughout this book, this little side, throughout the book, I talk a number of times about this topic of shifting the utility bills. It's one of the most underutilized but powerful strategies for investing in multifamily real estate. If you can shift the responsibilities, so we talk about in the book how to do that, when you can do it, when you can't do it, and give you some options for real to make that happen. If you can tap into that secret, there's so many opportunities out there for small multifamily

investors. All right, back to the book. The multifamily millionaire. Multi-family real estate has the power to turn you into a millionaire. We're living proof. And we want to see you use multifamily real estate to transform your life into an adventure that your children's children's children will still be talking about. Buying any old multifamily property is not going to get you there.

You must have the right plan to buy the right property in the right place to get right profit, using the right financing, and then manage the whole process right. That might sound overwhelming, but this book will make the mission a reality and turn you into a multifamily millionaire, all by using a simple method we call the stack. It's time to see how this method can completely transform your financial life forever. Key takeaways. This is basically a summary of what you learned in the chapter. Key takeaways.

The difference between large and small multifamily properties invest in the approach. Small multifamily is much more hands-on and personal, while a large multifamily is more corporate and professional. Understanding both is essential to becoming a real estate millionaire. Second, small multifamily real estate is powerful due to the cash flow it can generate, the incredible financing opportunities available, the commonplace nature of the investment,

the reduced competition for deals, the speed at which you can grow your portfolio, the opportunities to land great deals from burned out landlords, the potential for house hacking, and the knowledge you'll gain that will get you the bigger deals. And finally, third, multifamily isn't all rainbows and cupcakes. There are pitfalls. The guidelines laid out in this book will help you avoid them.

And that's it for Chapter 1. Thank you, everyone, for listening. Hope you enjoyed that. And I hope you go pick up a copy of the multifamily millionaire, volume 1 and volume 2, available right now over at biggerpockets.com slash store. And remember, if you buy both volume 1 and 2 from Bigger Pockets, you're going to get a whole bunch of bonus stuff that Brian and I have made as well, including some white papers on investing in a post-COVID world,

some videos on no money, multifamily real estate investing, and how to jump straight into the bigger deals. Like if you want to jump into the bigger deals right away, I haven't got some information on that. And a lot more. I mean, we really spent a significant amount of time on the bonus content.

We want you to buy it from bigger pockets. Support us, help us reach more people. So thank you. The books. Again, we'll be available at bookstores everywhere, Barnes & Nobles and Amazon and all that.

later this fall, so you can also look for it there. But right now, only available at biggerpockets.com. I believe that shipping's free. So go over there, check it out. I think you're going to like it. Thank you for your support. And if you do like it and you have a good time, make sure you leave me a review for the book over on Bigger Pockets.

We have a review section on Bigger Pockets. And, of course, if you get it from Amazon or one of those other places, you can leave a review there as well. It's all I got. Thanks, everyone for BiggerPockets.com. My name is Brandon Turner. Signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small.

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