BiggerPockets Real Estate Podcast - 64: 50 Units in 5 Years while Working a Full Time Job with Josh Sterling

Episode Date: April 3, 2014

Working a full time job while investing in real estate is not always easy – but as our guest today shows us: it’s totally possible. On today’s show we chat with Josh Sterling, a real estate investor who has built up a portfolio of fifty units (complete with rehabs and doing his own management) all while working a full time job. Discover the tricks, tactics, and systems that Josh has used, as well as an inside look at his creative finance methods to acquire these properties. This show is definitely one that people will want to come back to time and time again! In This Show, We Cover: Why doing things “the typical way” may not have been the right path Investing when the bank says “no.” How Josh used credit cards to buy his first few properties Portfolio lenders: the best technique for finding one Using a blanket loan to buy and sell real estate Using the 2% rule to screen for great properties How Josh managed his real estate business while having a full time job How Josh finds deals  Using Homepath Mortgages for 10% down investment loans How Josh found his first apartment complex using Facebook! Dealing with tenants while working a full time job And so much more!  Links from the Show BiggerPockets.com/pro (New Video!) BP Podcast 048: Duplex Investing, Finding Great Properties, and Tips for Managing Tenants with Darren Sager BP Podcast 055: The Five Steps Needed to Get Any Lender to Say “Yes” with Jimmy Moncrief The 2% Rule BP Podcast 061: How to Succeed in Multifamily Investing – A Unique Conversation with Josh, Brandon, and Ben HomePath.com BP Podcast 063: Automating Your Investing, Long Distance Rehabs and Spec Building with J Scott Jason Hartman Podcast Buildium Property Management Software Tweetable Topics “If you can stand out, do extra work – you are going to get incredible results.” (Tweet This!) “Buy and Hold real estate is the best way to build wealth.” (Tweet This!) “I’m much more of a ‘ready fire aim’ kind of guy.” (Tweet This!) “Be proactive, not reactive, when looking for contractors.” (Tweet This!) Books Mentioned in the Show Rich Dad, Poor Dad by Robert Kiyosaki The Snowball: Warren Buffett and the Business of Life by Alice Schroeder Connect with Josh! Josh Sterling’s BiggerPockets Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 64. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the height, you're in the right place. 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, everybody? This is Josh Dork and hosts the Bigger Pockets podcast. here with my magical co-host, Mr. Brandon Turner.

Abra-adabra. Al-a-a-Zam. Yeah, look at me magical. How you doing? You were a kid who used to do magic, weren't you? I actually, so I remember setting up like this like magic table in my bedroom and doing a whole magic show for my family. And then like two months ago, I went to Universal Studios in Florida. And I bought a whole magic kit there that I've been waiting to do on a bigger pockets video.

And I haven't done it yet. But speaking of it. video. I did actually work on a video this morning that I'm going to be editing later today for BiggerPockets. So I'm pretty excited. I got a new camera lens and stuff. So, very exciting. I'm sure everybody cares. They do. You should check out my new? I'm telling you. Okay. What's the new video? What do you work on? All right. So I did a video on the pro upgrade. So, hey, you should go check out the pro page, everyone at biggerpockets.com slash pro. Look at that. Nice plug, brain. Yeah, look at that. Okay.

I set that one up and hit it out of the park. I'm a sucker. Okay. All right, moving on. Well done. Well done. All right, guys.

Today we got an amazing show. We've got Josh Sterling is our guest. And this guy is unbelievable, really, really inspiring. He's a real estate investor up in the Detroit, Michigan area, Detroit adjacent. Josh is a former pilot, a current air traffic controller. And while working his full-time job, he's, a real estate investor amassing a portfolio in the past five years of 50 properties. So in five years while working, his full-time job, this guy's built up this incredible portfolio.

So for any of you guys who are thinking, you know, I'm too busy or it's so hard to get that first one and then the next one, you really, really want to pay attention to this one all the way through. Josh has got some really good advice. We go into depth on a lot of really cool topics and hopefully you'll stay tuned. With that said, really quickly want to hit our Quick tip. Today's quick tip is we are in the midst of a big time redesign of bigger pockets. And in the coming weeks, we're going to be relaunching this thing with really, really much sleeker design, a lot cleaner.

We're improving a lot of the functionality that may be a little junkie, so to speak, some of the problem areas we've really focused attention on. So just wanted to give you a heads up. We got this thing coming soon. It's going to look awesome and it works great and we're super excited about it. So that is today's quick tip. Lastly, this is show 64 of the BiggerPockets podcast. You can follow the show notes at biggerpockets.com slash show 64. And finally, there was a lastly, then a finally. And finally, if you have not yet reviewed this show or left us feedback on iTunes, we really ask that you do so. Please, jump in, leave us an honest review. We haven't really asked you guys a lot lately to do that. And we're now averaging almost 22,000 listens a show. We've got like 600 reviews. So hopefully some of you guys who haven't yet taken the time to do that could. It really helps us get more visibility, helps increase the listenership for the podcast.

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Josh, what's going on, man? Welcome to the show. All right. Thanks for having me. It's good to be here. Awesome, awesome. Good to have you. Yeah, this is the first time we've had a guest with the same name is of my, I don't know, host here. Josh. Yeah, my caveman brain may not be able to fully function in talking to somebody with the same name. Me, Josh. Josh Sterling, we are glad to have you. You and I have actually known each other for a little while now. I don't know, it's been like, I don't know, what a year maybe. I think we met a long time ago. You reached out to me and we started emailing back and forth.

and I'm excited to have you on the show today. Well, great. Thanks again. It's great to be here. Yeah. So, Josh, we talked before the show, and you have 50 doors under your belt as of this, you know, sometime in the next couple days. You'll close that last deal. We'll talk about it.

You've been at this for five years and you work a full-time job. A lot of Fs going on here. That's awesome, man. I mean, wow. How on earth do you go from this guy? who knows nothing about real estate and five years later, you've built such an incredible business. You know, it starts with, I did everything growing up that you're supposed to do, right? I right out of high school, went right to college, best college that I thought I could go get into,

did well in school, graduated top of my class, went right into the career. I became an airline pilot. I thought I really had it figured out. five years after that, I was about 26, 27 years old, and I realized maybe the path that I went down wasn't really the right path. Everyone tells you to go to school, get the good job. I bought a condo in there sometime right at the peak of the market and looked back over it all and it really wasn't the right way to do it, I think. So I started looking in other things to do.

I had about every different idea for different businesses that I could start. and really real estate investing was the only one that made sense to me at the time. Nice. Hey, when, when, when? When was this? Because you're a young guy right now. I mean, you don't look much older than 26, 27 right now. Yeah, I just turned 30 here last year.

Nice. Okay. So welcome to the club, baby. You old guys. Not so good to be there. No. Well, that's cool. Well, so how did you actually get started then?

I mean, what did the first deal look like or what was your entrance in? Sure. So, well, our first deal was kind of accidental. I mentioned I bought a condo in there somewhere at the peak of the market, probably the highest day ever for prices. I think it was. I bought the whole day, too, by the way. And I didn't know it at the time, but my now wife, she had also bought a property, I think, about the day before I did, about the peak of the market. So our first deal was.

We met at the closing table. It was a romance at the escrow. We met in Las Vegas. That's a whole other story. But she ended up moving. to my place in Florida. I was traveling around with the airlines, so we rented out her first mistake property, if you will. A little bit negative cash flow, but made it work. So that wasn't really a true targeted investment, but that's what got us into it. I remember the day we listed it.

We listed it for rent. We went out bowling. I came back. I have 17 missed calls on my phone. So I figured, well, there might be something to this. And that's what got us into it. That's cool. Do you recommend people starting that way? Like, look, Looking back, do you recommend people start with their first, you know, turning their home into a rental? Not necessarily. I think that was actually probably the hardest way to do it, mainly because I know she was emotionally attached. We still have it as a rental today. She has a little bit of an attachment to that home. It's actually been in her family for about 30 years. So, you know, if any kind of damage is done, even though it's just a small monetary fix, it's still emotionally

is tough for her. But either way, that's what got us into it. And then it was just a matter of how do we actually turn this into something scalable and some kind of business here? You know, you make a really good point there on the emotional side. I think that's probably one of the most important things that an investor needs to learn is to separate emotion from business. You know, I think that comes in when you're acquiring deals. It comes in when you're negotiating on the sale of deals. And it comes in when you're fixing them up.

Absolutely. I think that's probably where a lot of new investors really mess up. They get tied in. They're drawn in and they fall in love with the place. And they want to tweak it and fix it. So it's just perfect. And maybe you're overfixing it for your tenants. Maybe you put too much trim in for flipping it.

Or maybe you just can't let it go when it starts going downhill or it's negative cash flow because you know, you fell in love with the property. Right. Absolutely. Yeah. I still get like, I mean, I've been doing this for what, seven, eight years now and I still get emotionally like attached or just involved with everything. It's really a bad problem to have. I mean, like, if I have to go through an eviction, eviction should just be a, you know, pretty simple thing.

Give it to my attorney. Let them take care of it. But it's not. I still like it like stressed and that like not in my stomach and I'm all like, you know, ticked off the tenant. It's because you're nice guy, Brandon. As far as the rehabs go, I mean, I think, you know, there's a fine line between overall. rehabbing or, you know, being a slum lord. And I definitely err on the over-rehabing side. We're putting, you know, $25,000 remodels on these rentals. And more often than not, I get people that invest that say

you're really overdoing it. And emotionally, I guess you can say, I take a little pride in the properties. I feel like if I wouldn't live in it myself, then I don't want to have it as a rental. So I almost feel the, I like the pride of listing a unit having 10 people fight over renting it. So in a way, I guess the emotional aspect of it can be good for you. So are you over rehabbing in that you're putting in granite where you could just put some formica? Or are you over rehabbing it? I don't know if you listen to our show with Darren Sager. He's tenant proofing it. He's over rehabbing in that he's putting better materials that are going to survive longer. A little bit of both. I mean, I will, for example, refinish hardwood floors, which cost me a touch more up front. But again, that's kind of

tenant proofing because carpet gets destroyed. On the granite note versus for mica, there's certain layouts of kitchens where it's so small and there's so many different configurations of countertop that it might only cost me an extra $300 or $400 to put granite in there, then I'll go granted. I sometimes will do that. That's way above market even for a flip here. But I'll tell you what it has really helped, I think, attract good quality tenants who want to stay for a while.

And you're in what market, just so we know. We're not too far from Detroit. Don't get up on us too much. My wife works downtown Detroit. We're probably 20 minute drive from downtown Detroit, but it's a world away, really. I wouldn't touch Detroit to be... That's a nice idea. I've been there.

That's not true. Either one of them. You're a funny guy. All right. Well, let's go back, I guess, a little bit to your first deal was the accidental rental, which you aren't, you know, negative cash flow, whatever you're making to work, which I'm doing that as well in one of mine. So what happened next?

How did you actually jump into investing then in real estate? Yeah, so we had realized, I think the light just went off when we realized the demand just for that one house that we had. And I thought, man, if we had more of these, this could really turn into something here. So that was January that we rented that out. By September of that year, it took us to come up with the funds to purchase an actual intentional rental. And at that point, we didn't have the, well, we hadn't really set anything up as far as a business entity. We really didn't know what we're doing, to be honest with you. I remember we,

I didn't know anything about fixing up houses. I didn't know anything about landlording or anything. So we find this house. It's basically turnkey, which really meant it was like lipstick on a pig remodel, but either way, it was ready to run. We find this house. They actually offered it. for sale on land contract, but I was so naive. I didn't even know what land contract was, so we just paid cash for it because we'd saved up enough to buy it in the nine months there. Looking back, now I could have bought this thing on land contract, and it would have been a better deal. But anyway, so we buy this house. How much did you pay?

$40,000. Okay. And that was probably a little bit high, too. But again, at the time, it was, you know, it worked for us. So I remember the first time we listed at the tenant, who's still with us today. She calls up and is asking questions about the house and she asks it as central air. And I go, I don't know. What's that? Well, anybody out here? But I'm not from Michigan or I'm from in California. We don't have central air anywhere. I'd never even heard of that. I didn't know the first thing about rentals. And it works. That just shows you that it really anybody could do this. That's funny. Well, that's cool. That's cool. So you buy this first unit. You pay 40 grand.

How much money did you put into fixing it or you just slapped a little more lipstick on the pig? It was, they marketed this turnkey. I think I put 50 bucks into like running some exterior cocking around some of the world. Okay. We literally mentioned it like that week. Yeah. But I quickly realized

that it wasn't a very good remodel and a better business model would be to buy these bank-owned homes that needed work and I could do a better remodel for cheaper and that's what we started doing from from that point forward. Gotcha. So you ended it up in this property. It wasn't in great

shape. Now you put this tenant in and you said you still have this person in there today. Still there. Have you done any work on the unit to kind of fix it up or she's been pretty happy? I haven't done, you know, besides your routine maintenance here and there, pretty much as the day we bought it. Wow. Wow.

And no complaints, no problems, no issues, huh? Nope. Well, you know, you have your occasional furnace problem here or your drain problem there. But yeah, just no upgrades, real. It's been standard. Which kind of goes to show you that, you know, you really do need to market to the, to the tenant that, you know, that's available, essentially, you know, in this particular market where you've got this particular property, the tenant didn't really want or need anything else, right? So,

right? Why, why go ahead and spend an extra $10,000 or five, whatever, to fix it up when you didn't necessarily need to? And presumably, you're not a slumlord in this property. Presumably, the property is up to a pretty decent standard. Yeah. And I, and I don't, I shouldn't downplay it. It is a pretty nice property, especially aesthetically. It's pretty nice. Now that I've done more of these, I realize that for that amount of money in purchase and then rehab, for an all-in investment, we can do a lot better remodel, not only quality-wise as far as, you know, structure, but as far as aesthetics also. So has that been basically your strategy? You said, you know, now you remodel them better than that first one.

So is that your strategy to buy cheap houses, fix them up and then what refinanced them or something? You know, we really, so at first, nobody would give me a loan. for anything because I made hardly any money at my old job and the market had just tanked. And so, you know, the banks were not touching mortgages, really. So we bought about up through our fifth house, we had to buy on either cash or 0% credit cards. Really? We'd talk in at the time, $25,000 to $30,000 houses, but nobody would give us a loan. We would look high and low and there was no chance of that.

Great credit, but I guess the income or the market we were in, people would not lend. So you use credit card to buy properties then? We use, yeah, we would, what we used to do, I'm not talking cash advance 20% APR. There's actually some pretty good balance transfer offers that you get. If you have a $20, $25,000 limit, or we would actually get a few cards with $7,000, $10,000 limits, lump them all together,

and you can get $30,000 in cash off of those. And essentially, it's the fee you might pay, it might be maybe 4%. But over a year, that's a pretty good rate. And you've just got to be disciplined enough to pay those off, which we were able to do. So you were buying them with the 0% interest and then just paying them off over the 12 months or whatever?

As quick as we could, we were dumping anything from our job income into it, all the cash flow from the rental, whatever we could save, whatever we found in the college, whatever we could do. So virtual hard money loan from the credit card company. Essentially, yeah, and it was a risk. But looking back at the time, I didn't have a lot to lose. I mean, I had basically graduated from the most expensive aviation school in the, probably in the world. You know, I had all this student loan debt. I had this upside-out house. I'm thinking,

I've already tried everything I'm supposed to do. So let's try something different. Yeah, but you were a pilot, man. I mean, pilots walk around, you know, the girls come flocking. You know, oh, wait, that was 1980. Hold on. Yeah. Well, before, yeah. Yeah, yeah. That's so much anymore. Nice. I want to see that paycheck. Exactly. Well, that's an industry. We could, we could do a whole show on, but this is a real estate show, so we're not going to talk about that. So, you know, what would your recommendation be? I'm personally, staunchly against using credit cards for this kind of thing. That's just me. It is what it is for me. Brandon has used it. He tends to be more pro. Obviously, you used it.

It was a circumstance where your downside wasn't necessarily there in your mind. So what would you tell a new investor? Do you think that they should go ahead and use a credit card? Or would that be kind of the last line of defense? I think it's definitely not your top strategy there. But the way we did it was really to accelerate the rate that we could grow. And we didn't have a lot of options. So I think it should be in your bag of tricks there, but definitely not your top priority.

Yeah, that makes sense. So, I mean, obviously the cash advanced credit card thing hasn't given you 50 units, I'm assuming. So what did you do after that? Like, what happened next after these first few credit card deals? So we had essentially four or five houses free and clear at that point. And I still couldn't get a bank that would loan us money. I had realized at that point, mostly through getting onto bigger pockets and talking with people that you can't go to the Bank of America, the Chase, the national conforming lenders

and get mortgages, especially for these $30,000. houses at the time I was buying. So I found out through networking on there and working with people in the area that what you need is a portfolio lender. And what is a portfolio lender for those who are going to do? Usually it's a small bank or credit union that is going to write a loan and keep it on their own books. Okay. And so now I know I need this portfolio lender. I go on the internet and find a list of all banks that are potential portfolio lenders in Michigan. And again, I got that reference

you're somewhere on BP. I can't remember exactly what it was, but if you Google portfolio lenders, you'll find this. I had a list of about 50 banks in my area, and I sat down on the phone and I just started calling them literally one by one. I called 50 different banks. And it was like prom night. I got like 48 nos. So I did find two of people. There's that bad, huh? I found two different banks that would actually talk to me that said, A, we might be able to work something out. I went ahead and scheduled appointments with both of those. And one of those, we ended up being able to put a deal together. The guy said, yeah, you have four free and clear properties. I think we should be able to tie those together in a blanket loan and loan you money on a conservative loan to value. We're talking,

I was maybe $40,000 on average, all end to each of those. That's purchase plus rehab cost. And they would loan maybe like 60% loan to value on that first loan against those. So I ended up getting a $100,000 blanket loan from them, which to me was huge because I'd been. using 0% cards up until that point. That's awesome. That's cool. So the portfolio lender kind of came in and saved the day, which is awesome. I've kind of found the same thing with portfolio lenders in my area.

There's a few of my properties where I did that. What I think is interesting is that you said you talked to 50 different portfolio lenders. I had a guy the other day on the bigger pockets. They sent me a PM, private message. And he said, how do I find a portfolio lender? I just don't, I can't find any around here. I talked to a few banks, and I said, grab the phone book, call every single solitary bank in the phone book. I was like, it might be 20 or 30 of them. So I love that you did 50 of them.

I said, call 20 or 30 of them. Just ask them if they do any portfolio loans. And, you know, knowing now what I know and what I'm trying to do, I probably had a few more banks in there that would have worked with me. But I didn't know what I was even talking about, really enough to. I'm surprised this guy worked with us. And we still work with them to this day. We've probably done five, six loans with the guy, the same setup. Cool. Cool. Yeah, that's one of the nice things when you find somebody that would. work with you. What I always find in lending, and I don't know if you guys would agree with this, but I always find that the banker, I mean, I was a banker for a very short time of my life. I worked at a bank, but the banker. Wait, wait, wait, hold on. Stop. Do you know that? You were what?

I mean, yeah, I was a personal banker. Somebody trusted you a bank. I know. Amazing. Didn't you mop the floors there? That's what I was going to say. I mean, I were a janitor. Funny, funny actually story about that. That's so like, this is like five years ago. I worked at a, at a national bank in like the lobby doing, you know, home micro-reline of credit and those kind of things. Anyway, one day they asked me to paint their upstairs because I knew I knew how to paint. They paint the break room. So I did.

And that's the day I turned in my notice to quit because I thought this is way better than working at a bank. So anyway, so what I always find with lenders is it's every bank kind of has the same rules that they all play off of. I mean, even though they may say they don't, everyone kind of has the same rules.

It's the banker that can push a loan through versus, you know, 100 bankers who won't do it because they're not creative. But if you find a good lender, a good banker that can actually work hard to push your loans through, they can do amazing things. So there's my quick tip for the day. So, Josh, why did that bank say yes where everyone else said no? You know, like Brandon said, I think it was the banker. The guy that we had started working with there, the whole commercial lending department was this one guy. And he must have thought that what we were doing would work.

He, like you said, he pushed the loan through and it worked. And we did another one with him. And we're to the point now where a new person has taken over three or four loans ago took over that position. And this guy has gotten so close with us that he sent me a picture of his newborn baby from the emergency room. Nice. Nice. That's awesome. So for people who are listening, how did you present to this guy? Did you have a package?

Did you have some kind of kit that you brought with you to him? What did that look like? The whole like, okay, let me go in. Let me sit down and meet with you. What did you bring? I put together, I believe on the initial phone call, he had emailed me out some documentation. I put together a personal financial statement showing roughly what we look like financially. And then I put together a package of each of our properties.

And at that time, I think it was five or so properties. pictures I put together to show that we were improving these things nicely, leases to show what they were rented for, how long the lease terms were. I really didn't even know what I was asking this guy for. He's the one that came up with the idea of we can do a blanket loan as a cash-out refi. I was actually originally looking for something where I could go in and find purchase money for the new houses. Now, is that unusual to get a blanket loan with a cash-out refi, or is that, you know, you can't get that at a traditional bank, can you? Right.

I can't get anything at a traditional bank even to this day. But can I open a checking account, please? Yeah, I've basically sworn off the traditional banks for the most part. But for me, that's what's worked. I really go back to the same credit union every time. There are a couple of other credit unions that I've run across through different dealings that have mentioned they can do similar work. So I know for our area, it's definitely possible.

And when we first started doing these, a blanket loan was unheard of back in 2009 and 10, you would think no one would do it. So it was really, you know, it was a nice to find these people. And again, oh, go ahead. Well, I was going to say again, that comes down to the banker. It was his, you know, if the other 49, you know, bankers have thought, I wonder if our underwriters would go for this. I mean, that, again, that's what sets apart an amazing banker from whatnot. Just somebody who thinks outside the box and says, I wonder if we could get our underwriters to do this. Right.

Yeah. So I, and I love that. It reminds me a lot of what Jimmy Moncrief said back a few shows ago. I'm not sure what number that was. But he's a bank underwriter. He was saying, you know, you've got to convince them that it's a good thing. See, the fact that you brought in all this information, those things help so much because so many people don't.

They just come in and they just dump a box of stuff. And maybe you did that on your first ones too. I mean, I know I did. But like so many people will do that. So if you can stand out, go the extra mile, do a little bit extra work. And you're going to get incredible results. That's my philosophy. in life. So, well, cool. So what happened next after, I mean, like, you're getting these houses.

Maybe we can ask you what kind of houses were they? I mean, are they all dumpy, like, you know, need to be burned to the ground houses or what are they? Yeah, the neighborhoods in the areas I'm in, I really do focus on a pretty small area. Probably about a two mile radius would encompass everything we own. And so it's within about a, most of it's within about a half mile of where I actually live still to this day. So I got to know the area real well. They're real standard. cookie cutter houses. I think they built the entire city in the year of 1950 to 1952. Nice. So they're all the same. They all needed about our average remodel right now is running about 17 grand. That's with hiring the workout between 17 and in 22,000.

Are these three twos? What are they? They're all mostly bungalows, three one bungalows with a basement. Some of them are a garage where you can get it, but that's basically the standard for the area. You don't really see many three-toes. Are there's finished basements or unfinished? If they're finished, I usually like to gut them. Unless it's a really, really nice finished basement, I actually tend to go the route to gut it and just make it nice and clean. We paint the ceilings, the floors, the walls. It's way less hassle.

Interesting. If you have a finished basement and you have any kind of water issue, you're gutting the thing on. Yeah. Yeah, that's good tip. That's good tip. So you're going in, you're buying these houses that are in, there are decent neighborhoods, you said, right? I mean, you live there. I think so.

I live in that neighborhood, you know, in the same neighborhood right now. Okay. And so what are they, I mean, typically, what do you buying them for? You said you're putting in around $20,000 and then what are they renting for? So at a good point in the market, we were buying them for anywhere from $25,000 to $30,000. Now that same house is going to cost me. I just bought one about two weeks ago. There was $40,000 identical house to the ones I was buying.

Again, I'm putting between $17 and $20 into them. And pretty much every one of those will rent for at least $1,000 a month right now. If it doesn't have a garage, it might be 975. And if you have a little bit bigger addition on it, you might get up to 1075. Yeah. Well, those are good numbers. I mean, those are just about like 2% rule. I mean, those are good solid numbers.

For a while, it was pretty easy to hit the 2% rule, but with the market increasing, not quite as easy anymore. Yeah, that makes sense. Let's really quickly cover that for those people who don't know. 2% rule says what? Two. I actually do it a little bit backwards. I like to do a quick 50 times rent.

So if it rents for $1,000 a month, I want to be all in for $50,000. There you go. Yep. I like, yeah, it's nice to think about the 2% rule that way. Well, cool. All right. So you got these properties. You were renting them all out.

Are you managing them yourself? Do you have property management? I mean, how are you doing that? Yeah, I am. I did get out of doing the rehabs. I did about the first seven or so rehabs on my own. And I actually with that first blanket loan, we bought about four properties within I don't know, 30 days of each other, I realized I can't do these rehabs anymore.

So I've got out of that work, but I still do all the management work. Basically, if it's maintenance, it gets hired out. And I receive all phone calls. I still deal with the collection issues when they come up and essentially the management of the tenants. So you're working a full-time job. How on earth do you manage your property, taking phone calls and dealing with tenants and everything else while working a full-time job? You know, really, especially on the houses, I talked with Brandon a little bit earlier. We have an apartment building also at 24 units.

That's a good chunk of those units. That takes quite a bit of work. I think that's probably 80, 90 percent of my work right now, especially with the turnaround on that. But I don't think on my 25 houses that we have right now should be 26 this week. I don't think I spend more than five hours a month on that. Wow. Yeah. I'm probably the same way.

I think I said something similar to Ben Labovich a few weeks ago, where that, on that podcast that long when we did with him, where I feel like my houses don't take hardly any work to manage. It's just those, that multifamily, the multifamily is take a lot more work to manage. I almost want my own unit at the apartment building because I'm out there so much. Let's talk about that. I mean, you know, I think it's, there's an important distinction. And I think it has to do with how people look at the property that they're in. My theory is you look at a house as your own place. You know, this is my place. You know, there's four walls.

You don't have other people next, you know, on adjoining walls. You've got a lawn or something. Whereas in an apartment, you know, you're stuck in a building with other people. And you don't have as much pride in ownership or in rentalship, so to speak. Would you guys agree that that's kind of the theory behind that? I would. And I actually think it comes back to the amount of rehab you put on to it. And so even if I am over rehabbing these a little bit, the quality of tenants, some of our tenants are doctors.

and lawyers. I mean, we have tenants that are, I think, extremely high quality and it just improves the whole bottom line. Plus, people tend not to move, which creates a lot of work and costs a lot of money every time you have a vacancy. I think vacancy is like an emergency situation. So people, so you think people aren't moving as much in houses as they are in apartments, and I would agree. Not only houses, but nicely rehab houses. My logic is if someone needs to rent and they cannot find a cheaper house or a nicer house, then they're not going to move. So if you price your property right at

or just maybe slightly below market and make it nicer than everything else, your turnover. We ran above 99% occupancy the last two years on the houses. Wow, that's great. You've got to look at the cost to move. I mean, the cost of move isn't cheap,

so figure that out. If you're going to save a couple bucks to go live in a new place, it's probably not worth it. Right. You don't one aspect that people don't talk about very often. And I'd like to get your thought on this.

And that is, you know, I say that single family houses are easier to manage, in my opinion. And multifamilies are nice because everything's right there. But single families just require less work. The thing that nobody talks about, though, is the amount of work, at least for me, that goes into insurance. Insurance is hands down the biggest time I spend, my wife spends. I mean, we have a fire insurance. No, not like a little fire, but like not a literal fire.

but we have like an insurance fire to take care of every week, maybe two a week with all of our properties. And that's like half of my wife's day is spent dealing with the insurance companies on just things like your insurance has been canceled. Oh, your rate's been, you know, you don't have adequate insurance. And then we have to send them a letter saying, yes, we do. It's because you're a deadbeat, Brandon. No, like, it's really like there's so many like stupid rules with insurance. When you have 50 properties, you know, like if they're 50 single family houses, you get 50 letters a year from insurance. If you have one multifamily, you get one letter. So for that reason alone, I take multifamily. But anyway. It's just like the B2R finances trying to do for the financing side of it. Now, there really is no one for insurance that's made to handle, you know, over 10 properties, they really start to shut you down. Yep.

And I had a similar insurance fire about a year ago where I found out with two weeks notice that our rates were essentially going to double. I wish I had more notice on it. But I was able to scramble and find somebody who would cover them. But it's just a matter of time until the same thing happened. happens again. So what does insurance cost on a $40,000, what, $60,000 house in Detroit? So I, not Detroit. Detroit. Detroit adjacent. I insure them all for cash value. I think that's the number one. I mean, if you go to state farmer, anybody off the table, they're going to want to insure for

replacement costs. Replacement costs on one of these is about 180 to 200,000. So you're paying expensive rates. I insure for cash value. Usually it will do it for about 60 because I figure, again, it's not emotional. I'm all into this house for 60 or less. If it burned to the ground, I would just go buy another one that purchases the same income. So that's my logic. And I'm actually with my insurance issue I had last year at changing companies. I actually lowered my rates. So I'm anywhere between 330 and about $360 per house per year. Do you follow a similar premise there, Brandon, on your properties? Are you going cash or replacement? I do the exact same thing, cash value generally. On some of my partnerships that I work with,

people, the partner feels a little bit uncomfortable with that. They, they're used to homeowner stuff, so they want it full coverage or, you know, replacement value. So there's a couple that I give in on that and we have higher. And there are actually a couple insurance companies where I've gotten cheaper rates by having replacement value. It's uncommon, but I've seen that a few times. Gotcha. Gotcha. So my next question is one that I don't really know that we've asked, but previously, you've got these properties. These are single family homes. What are the tenants responsible for? As somebody who wants to go and buy a single family rental property, you know, how do I know, what do I take care of? Do I buy it, get a lawn service? Do they have to

move the lawn? Do I, you know, get tree trimming or do they have to trim the tree? Like, what do you cover? What do you do? What are they responsible for taking care of? Basically, we try to put it at the tenants are responsible for essentially everything. Again, I think that's the other benefit over the apartment building in a way. So definitely lawn service. Tree trimming, we might handle tree trimming because that's a little bit more of a random occurrence, but anything routine, lawn service, we even put into our leases that they're responsible for pest control. If you have a pest issue, now I'll cover it maybe right up front the first month, but if they've been there three years and now they have mice, that's their fault. Yeah. Yeah. So those things. And then definitely

all utilities, you know, gas, electric, and in Michigan, water can be leaned to the property if it's not paid. So we get all the water bills at our office. We pay them all ourselves and then we build a tenant. That's actually my biggest workload with the single families is sending out water bills every month. We do the same thing with a, in not Washington State, but one of our towns refuses to let tenants pay water bills because they got stiff so many times. So they require the owner to pay it. So I have to pay it and I bill all the time. tenants and they don't pay and then I got to bill them again and bug them and do I evict over them not paying an $80 water bill. Yes. I mean, you do, but yeah, like that is such an annoyance to my,

to my business. I don't know. Everybody in that town deals with that. Get out of town, man, find out of town. No, seriously. I mean, I'm serious. I don't buy a lot. It seems like a very landlord unfriendly town. Yeah, I've been moving a lot of my investing more towards where I live, which is, you know, Montessano instead of Hokouin, which is that town. So, So on these things that the tenants are responsible for, say lawn, do you know, do you require them to use a certain vendor? Do you, you know, how do you kind of manage that? I try, you know, I feel that trying to micromanage every little thing is just a recipe for disaster. I mean, I'm a control freak. Don't get me wrong. But if you try to control every aspect of what a tenant does, my first house that rehab that we bought ready to rent, that her kids had marked on the baseboard, had drawn on the wall, essentially, before she even signed the lease. And I almost had a nervous breakdown there. But you got to let this stuff go a little

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That's A-V-A-I-L-C-O-Bigger Pockets. All right, well, let's go on a little bit. I want to talk about, you mentioned that you've done, like before the show, you told me you did one flip. And I wanted to ask you about that. What was that? Why did you do one flip and why only one flip? Why are you not a flipper? You know, I've always wanted to flip.

I mean, heck, why would you not want to make a bunch of money real quick, right? So last year, we had some finance, we had a line of credit set up where they had a requirement. It was paid down every 12 months. So it's perfect for flipping. So we went out, found a good house to flip, did the rehab, standard rehab like we'd do on our remodels. We ended up, we bought the house for 50. We were into it for $17,000 exactly. I think I was within like $100 of my budget, just by a stroke of luck.

We sold it for 105 with multiple offers the first day on the market. So it was great. We ended up netting after all commissions and whatnot. My wife's an agent now also that helps. But we ended up netting about $27,000 on it. Nice. For owning the place, about three months. I went by there about 20 times.

It was great. But still, even with that, as we went to list it, I actually tried to keep it as a rental. My wife had to say, no, we said we were going to flip this one and we're going to flip it. I love the passive income. The flip was great, but I love that passive. I'm still always focused on building that. How are you finding these deals? You had mentioned some of them were REOs.

Is that all you're doing? Or are you doing any kind of marketing? No, I haven't been doing any marketing. It's basically all REOs. Up until this point, it's been, I believe, almost entirely off the MLS, with the exception of our apartment building. And that got real competitive about a year ago, a year and a half ago now. So my wife got her license.

We have now MLS access. And that's what we do when it's essentially when the funds come around and when it's time to buy a new property, which hopefully happens often. We get on the MLS and we go on a shopping spree here. We will come up with 20 or so listings and go look at them all in a day. Nice. I write a couple offers and get what we can. That's awesome.

It's like going down to sacks, you know? Yeah. Let me go buy some shoes. No, I want to buy houses. So today, what are you doing for financing today? Like you said you were closing on one this week. How are you managing that or getting the financing? So I still do the commercial blanket loans like I've been doing.

That's definitely our main supply of funds. And that's been great. They're easier to do and the terms are good. It's awesome. Can you explain again, can you explain again kind of big picture how that works? I got the earlier you said they got the first, you know, four under a blanket, but how's it working now? That's essentially, it's just a rents and repeat. So we started with that first one and we'll have four or five free and clear properties.

We'll go to the lender with those. Now they want to do appraisals because we have so many loans with them. So it costs me, you know, a few hundred bucks per property. But they'll do a bunch of appraisals. and now they'll loan me 75% of the appraised value. So usually four or five at a time and the loans have gone up. The last loan we did was $260,000 for that. So it's enough that we can go out and spend that to acquire more property.

We just keep rents and repeat. Okay. That's cool. We're also trying to tie up. I've always wanted to tie up some of this record low interest rate money right now, right? I've always wanted to tie up some 30-year financing, you know, at 5% interest. But even with a much better income at my job now, land all this rental income, I was still getting turned down by banks, mainly because we don't

fit that conventional mold. I'm sure you don't either, Brennan. You send them your income statement. You have 20 some odd properties on there, and they basically throw it in the trash, I feel like. We could never get anywhere. You guys are weird. In December of this past year, we closed our first loan with conventional financing ever that was intended for rental. We did a home path. They have 10% down mortgages for HomePath, and it was excellent. There was no appraisal required, so no upfront out-of-pocket cost, 10% down. We bought a little bit more expensive house because of that, and it worked great. So I'm in the process of closing another one this week. How does that work? Explain the HomePath mortgage. So can I go and find any property and buy any property and go to

home path and get a mortgage with a 10% down? Or is this like a special property? Explain that. Right. So if you're outlooking, you actually come across a lot more than you would think, at least in this area. But there'll be homes that are advertised as Fannie Mae Home Path. And there's either Home Path or Home Path renovation. So Home Path loans, you could get, you can do a 10% down loan on that for up to four mortgages. The renovation mortgages, they'll actually give you money towards the rehab cost. I haven't done that because I hear that it's pretty cumbersome as far as getting draws for contractors. But you then find a property that's home path. and go to your lender. We're using one out of California right now. So they're all over the place. You have a HomePath qualified property, and they do a loan back through HomePath at 10% down. It's a great problem.

So do you get the loan from any kind of lender? And does that, well, can any lender finance the loan and they would just have to use the Fannie program? Or would you have to go on Google and look for a lender who only does HomePath or who does HomePath mortgage? Yes. Most lenders, I believe, do it, but you need to find a lender that will do home path mortgages. And I actually had to specify one that would do them at 10% down because still, I think with all the different financing Dodd-Frank

and all the rules that have changed over the last couple of years, there's still lenders that think that it's 20% down a minimum or 25 for an investment property. So you've got to be, I specifically wanted a 10% down home-path loan. And to clarify, you can actually get a 10% home-path loan on a property intended to be an investment property. Yes, I couldn't believe it either, but I did it. For a fact, in December, I'm doing it right now, too. That's fantastic. Yeah, that's very cool. I've never actually done a home path before. I almost bought one once, but we ended up just doing conventional financing for whatever reason. I don't remember why. And again, it goes back to what I didn't know. I probably bought 15 home path properties in the

last four years that I didn't know I could have done this the whole time. Yeah, that sounds great. Yeah, that's cool. Well, hey, let's move on to a topic that I'm a big fan of. And we touched on it briefly earlier, and that is the apartment complex. Oh, seriously? I love talking apartment complexes. Is that all you guys talking about? No. No, Josh is just a whiner. All right.

We love talking about this stuff. Yeah, so you bought a apartment complex. You said it was 24 units, right? Yes. How did that come about? Can you tell us the story of how you founded and financed it? Yeah, sure. It's actually a good story.

You know, just like most people, I've always wanted to get into the apartment complexes, mainly because the scale of it. I mean, I see myself one day, you know, doing units. our complexes in the couple hundred unit range. So we had come across a broker through a mutual friend and gone out and started to look at some buildings in the 20 to 40 unit range, looked at a couple, and this one was one of them. This is about two years ago. We went ahead and wrote a letter of intent,

which is basically an offer for a apartment building. And we started negotiating with the sellers. They at that point decided that they thought the market was turning around and they would be able to get this building back up to standard and they decided not to sell it. Fast forward to this past summer, which had been about two years laps there, and the original owners had actually looked my wife up on Facebook.

He must have known her through high school or some college or something and said, hey, are you guys still interested in buying that apartment complex that you looked at two years ago? Of course, sure, if the price is right. So we went out, looked at it, started the process over again, and they had basically run the thing into the ground. back in 2006, the old owners had bought the property for $900,000, and we ended up settling on $514 for it.

So they had lost half its value. And as you know, multifamily is all based on net operating income. So it was 45% occupancy, a ton of deferred maintenance. It was a mess. That's cool. That's cool. So you bought it at 45% vacancy, which means occupancy, yeah, occupancy. and what were the empty units like?

Were they all okay or did they need a lot of work to get? No, I mean, again, I'm, I over rehab. I mean, I really do. So to me, it wasn't even close to cutting it. Some of them were okay as far as clean and basic. But I wanted to see a higher quality unit, and therefore a higher quality tenant in there. So that's what we started doing.

We started rehabbing the vacant units, and we were putting, you know, $8 to $10,000 into them. For that, for that, we could do a kitchen, a bathroom. room, all new flooring, all new doors, light fixtures. It's a lot of money to put into a apartment unit, but the way I justified it was if I put $10,000 into it, I can raise the rent $100 a month. I prove that time and time again because these things rent pretty quick once they're rehabbed. So that adds $1,200 a year to the net operating income, right? Yep.

So if you add a 10 cap, that is $12,000. Yeah. So I've therefore, in theory, got my money back already as soon as I can show it. consistently rented. Yep. That makes sense. Nice. So what did this thing end up?

Well, where is it today? What kind of vacancy rate do you have right now? Right now, we are at 92% occupancy. And we just bought it. We closed on Halloween last year. So I'm pretty happy with that. The roughest five months or so of the year to rent, and we basically almost got this thing full.

The two that we don't have rented are ones that we're finishing rehabs on right now. So you spent 514, bought it 45% occupancy at a 10 cap where are we at today? what's that thing worth? I think we've actually added close to 400,000 in value. I think it's back up to that 900,000 range with everything rented, because I've increased some of these rents significantly. And what did you put into it? I've got only, I've got somewhere between 85 and 100 into it. Mostly about, I did six units so far at about 10 grand per unit, give or take. I did a few furnaces or whatnot, which up that. And then we did a little bit of exterior work, which was really one of the first couple of things we did. We did some new siting. And just to show that there was new light.

in the property. I'll tell you the phone, I actually have a waiting list for people to get into it right now because we're trying to finish these last two units. That's incredible. It's really going well. I think the old owners just weren't giving it attention. Yeah. And for those people listening who don't understand commercial that well yet, that's the power of the multiplier, right? I still don't understand commercial. You're there, man. You're getting there. No, but that's, I mean, that really is the power, you know, by improving NOI, by filling vacancies, by raising rents, by getting supplemental income, you know, you're increasing the value of this property. You could probably go and get a, you know, refinance that thing, take some cash out and use that to go and buy more property, right?

That's the plan. And, you know, that goes back to me, that goes back to why I don't really like to flip as much. I know I got to follow Jay Scott on this, which is terrible. But I don't like to flip. You're doing fine, man. You've got, you've got, you've got, you've got all these aspects on a buy and hold. You've got your cash flow. You've got your potential appreciation. You've got your depreciation for tax purposes, which I found out helped quite a bit this year. You've got the principal paydown just from the tenant paying the rent every month and you pay in your mortgage. And then I'll steal this from Jason Hartman. It's another podcast out there, but he calls it inflation-induced debt destruction. So what other asset can you buy something

at today's prices and then pay this off in 30 years, whatever the inflation, has done to that, it's going to at least have doubled the value of the money there. For all those reasons, compounded, I think long term, I think that's the way to go to build wealth. Yeah, that's awesome. I agree. So do you feel like you're in over your head on this property or at any point? I mean, it sounds like everything's going well. You've got a couple of units that you're fixing up and you're going to get those filled. You'll be at 100% or somewhere there about. Should other investors consider taking on similar type projects? Or, you know, at what point, knowing what you know now, if you could go back, would you have bought a multi earlier?

And at what point do you think you would have been qualified? Well, I know the day we closed on this apartment building, I went out there with my wife right after the closing, and we're just trying to get our heads around what we're going to do. At the closing, the old owners handed us a freezer-sized zip-lock bag of keys, just loose keys and said, here you go. That's exactly what happened for me as well. That's exactly what happened.

I didn't know what opened the washers, what opened the doors. I had units I couldn't even get into. It was a total mess. So I was in way over my head. But so haven't I been on most things I've ever done, really. I mean, I've been much more of a ready fire aim kind of guy. And I think that's really one of the keys to actually making it is to having the balls to try it. Yeah, yeah, I agree.

Jay Scott's something last week. I was going to say, Jay Scott, yeah, he doesn't know anybody who's done just one. flip, right? Yeah, he said it. Yeah, people do one, they do lots or they're going to do lots. Yeah, the same thing. Action, it's all about taking action. So do you recommend other people get into buildings like that, like that big of a project? Are you, you know, you advocate of that? I mean, it's, I'm glad we got into it. I definitely have learned a ton. It's been a real Steve learning curve. I think having the single family background has been huge, though. I think right off the bat, that's probably not the best thing to get into because it's going to eat your lunch.

How so? What do you mean? As in the tenant management, the tenants are a much more management intensive type of group you're working with. You're dealing with stuff you don't deal with on single families. For example, noise complaints, window what we pay heat there, window wide open with the heat blasting, stuff like that. I mean, these are touchy subjects you got to deal with all day long. And I'm just, I didn't have to do that with houses. so it's tough. But in the end, I think it's going to end up being a worthwhile endeavor that we did here.

And also, banks like to land on these from what I'm told quite a bit more. I know my commercial guy is real excited about refinancing this. So I was going to ask, how did you finance this particular property? This one was run so far into the ground, if you will, that the owners had to sell it on land contract. There was no bank that was going to finance this thing at 45% occupancy with all that different. maintenance they had and whatnot. So again, back to the blanket loans. We had just closed a larger blanket loan and we ended up putting $120,000 down on it, financed the $394,000 balance on a land contract. They give us a five-year balloon on that. I figured that should be more than enough time to get this thing turned around and we took over. You know, it's interesting. Whenever we talk,

like, you know, email back and forth or talk like this, how similar you and I are. I mean, even to the numbers on our buildings. Like, you have a 24 unit. I have a 24 unit. I bought mine at 45% occupancy. I got to go, guys. Have a good time. You guys want to keep holding hands? No, I mean, no, it's like, what is this love fest? It's so, it's so similar. Like, every bit of the numbers you're saying is almost identical to what mine was. So I totally, totally get with you. The other day, yeah, well, the other day, what you were saying about your lender's excited to refinance it. I had like hour long talk with the commercial lender, one of the commercial lenders in my town. And yeah, he's super excited. We were like brainstorming all these

cool ideas. And he was like totally like into like we're both like feeding off each other on cool stuff to do. And that kind of goes back to what we were talking about way earlier is finding that that guy that you can, you know, do that with. It's amazing. Oh, it's nice. On my last blanket loan, he actually came to me and said, we're ready for another one of you guys are. And I said, yeah, I think we are. Nice. That's awesome. It's like the wheel kept going. Josh, how do you find dependable labor, right? You've, you've, you're rehabbing all these properties. You're going to ask me. Yeah. I don't know. That's a good question. All right. How do you go, I mean, you've got, you know, you've got all these units going on. Surely you've got some handymen and some contractors.

How did you go about finding these guys? Because I think this is probably one of the hardest things for investors to do. Yeah, it is. It's still tough for me right now. As far as my handyman work, I've really got one guy that I use for across everything. Step number one is I made sure that once I found a good guy, I took care of him. I paid him fair. I paid him. paid him on time. I treated him well. I gave him as much work as I could. So he wants to work for us. Essentially, we've got it systematized now to where I'll either send him a request in our property management software or a quick text message. He'll go ahead and call my tenant, schedule to repair everything. So as soon as I get that maintenance call, I'm hands off. That's

been nice. And then as far as contractors on these rehabs, same thing. I've got the same crew I've been using for several years. I have used a couple of additional crews when we really had a high demand for it. But my main crew, I try to take care of them on time. I try to, you know, pay them fair and keep work coming for them, try to keep projects lined up for them. That's cool. That's cool. Yeah, lately I've been, you know, I've talked about it on the podcast, people who listen to the show all the time will know that I say this. Like, we struggle with finding good dependable contractors all the time. So lately me and my wife have just taken this really proactive approach to we're going to find a ton of good contractors right now.

And like every day we put ads on Craigslist. We're renewing them all the time. We're interviewing people. Like we've got now a list of probably a dozen that we're trying out. Every day we try out a new one because it seems like there's a new project every day that we're dealing with. So we're coming up with that list. That's been my hold up before because you don't really, in my experience, you don't look for a contractor until you actually have a project. Exactly.

That's the problem. And then you're in this crunch where you're like, okay, I'll take the best I can get. Yep. That's exactly the problem. is everyone's the reactive, not proactive. Right, I like that idea. I should try that. It's working really well.

I mean, we got, yeah, we're trying to. And like, we just require in the ad, they have to be licensed and bonded. That way we're not dealing with people calling and saying, yeah, you know, I'll work for a pack of cigarettes. What would they still call? We just, we filter through them quickly. So you mentioned your property management software. What are you using right now to manage your stuff? I started with the purchase of that apartment building.

We started with Buildium, and I've actually rolled all of the houses. onto that as the first of this year. Okay, cool. I'm not sure. I'm probably pretty happy with that. Yeah, it was, you know, at first it was real tough to get used to, mainly the accounting side of it, because I came from just doing my own Excel spreadsheets. I'm kind of a spreadsheet junkie. I feel like what's the quote? What gets measured gets managed? So I have spreadsheets for everything. And it was frustrating that Building them didn't have the same spreadsheets that I had and obviously the same methods that I use. So learning their way was hard. But now I'm, I, I, love the thing. Nice. Nice. All right. So before we go on to the next section here, you had mentioned

that you're a strong believer in living below your means. That was, you know, in our kind of pre-interview notes. We've got that. Can you elaborate, talk a little bit about what does that mean for you? Well, I, you know, I'll compare it to my job I have now. I work with guys and we make very fair salaries for what we do. What is your job now, by the way? I'm an air traffic controller now. So you're not flying anymore? I still have my own small general aviation airplane, but I'm not flying for hire for people anymore. It's a way better way to do it.

So while planes are flying around, you're getting text messages from tenants and totally distracted. I'm a little worried. Where are you a traffic controller? I'll be sure not to fly in that area. Detroit Metro, but... Oh, I'm never coming there anyway.

They don't want me. I get back to the tenants. It's usually nothing's life or death there. Yeah. That's true. actually like nothing's hardly ever that important as much as they want to make them an hour later i tell people if you call or text me if i'm not back to you within an hour that means i didn't get it and and the way our job works it's great for that i get you know we're we're never working for usually

more than an hour without a break and so i'll take a break and go return a couple phone calls nice nice all right so living below your means so again i see these guys that make good money that i work with that um that are just strapped to the brink of there was a small little government shutdown If remember this year, we ended up getting one day off unpaid. They were talking about doing one day every pay period. It's a small portion of what you're going to make. We had people literally looking for loans to sustain their lifestyle because they've inflated it so much. And to me, I just, I couldn't believe it.

You see it all the time, everywhere you look. The biggest thing, the biggest factor besides maybe the commercial lender we found in our growth of our business has been living drastically below our means. Plus, it's easier to replace your lifestyle or to be financially independent if you only need to make $30,000 a year to live. Yeah. And at some point, obviously, your income from your rental portfolio is going to catch up or pass that of your full-time job. And then you have a decision to make, do we keep working so we can expand our lifestyle or do we, you know, bail out? Yeah, I'm at the point now where that's always been my goal was to replace the job income and quit my job. We're at the point now where that's very feasible.

It's now a matter of, do I really want to quit my job? I actually really like my job. I'm sure I will. I'm actually maybe going to look into going part-time or scale back to work. So it's more for the joy of actually going in there and not so much for the money of it. But that's a tough thing to give up. And I'm sure the banks, though, when you go to them and they see that you have a nice stable job, been there for a while, you make a decent income, it's a lot easier to get those loans, things like the blanket loans when you're like, That would get more troublesome.

They have definitely mentioned that that helps a lot. So that's good. Yeah, yeah, definitely. Cool. All right, let's go on and move to the next section of the show, which we like to call the fire round. It's time for the fire round. All right, the fire round. These questions all come from the Bigger Pockets Forum.

So we're going to fire match you and see what you say. Number one, would you rent to a tenant that offered to pay six months rent up front but had no references? That's a good question. probably depending on the property at the apartment building i would the way i see it is six months rent how much damage can they possibly do and if in six months i have to evict them i'm already coming out ahead financially uh one of my houses maybe not so much so it was all cash from a guy named vladimir no i'm sorry they would definitely still have to pass the background check no offense to anyone named vladimir that might be listening to me right right i'm my biggest fear

renting to somebody at the apartment building like that would be, I don't want someone to disturb the other tenants because I don't want one tenant to cost me, you know, 12. Yeah. Well, here's it. Here's an interesting thing. Somebody actually offered to me a while ago. They wanted to pay like six months or three months rent up front, but they didn't really qualify. But what they wanted wasn't just to like pay a big chunk at the beginning. I guess here's what the problem was. They wanted to pay six months rent up front. So they wouldn't have to pay rent for six months. But they didn't make enough income to qualify. They just got their tax return. So the problem I look at. at, I said, okay, well, yes, I would get six months rent. But after that point, you only make a thousand dollars a month and rent's $600. You're not going to pay rent. Yeah, I'm going to evict you. And at that point, like, you know, six months from now, I'm going to lose a lot of money on you. So I didn't do it. Had they made enough income and the reference thing, I'm the same way. I probably would still do it without the references, but. Right. I think it comes down to how difficult is it. Do you have 10 people knocking down your door to rent the unit or do you have one person every month calling you?

Yeah. Yeah. It comes down to just a first. financial decision for me. Yeah. All right. Next question. If a newbie has only one rental property but is expecting to acquire more, do you recommend they create an LLC, some kind of entity to put the property in? I do, depending on your state. In Michigan, it costs me $50 to create an LLC. Not very hard. An attorney can modify a boilerplate operating agreement for you, which you should definitely have for, again, not very expensive. I waited until I had about five properties. for my wife and I to create our LLC.

And trying to go transfer all those properties on our own was a nightmare. At the register of Deeds office, we had to go to. They looked at us like we were foreign. We had to go to the desk five different times to make corrections. And it was just a nightmare transferring properties. Yep. So you would say up front, go open up an LLC and put that first rental property into the LLC. Plus then you're that much more invested in the business.

You've that much more incentive to go ahead and grow it. And do you have one LLC per? unit or do you put multiple properties in a single? My logic has always, people sometimes criticize that you should have multiple LLC depending on the, you know, number of, the amount of equity in each LLC. My logic has been, if you can put a 24 unit apartment building in an LLC or a hundred unit apartment building in an LLC, then why can't I put 25 houses in it also and cover it with an umbrella insurance policy?

And then I try to go back and leverage my houses on the backside with a blanket law. Yep. That's smart. Smart. Yeah. I like it. Next question. What type of flooring would you install in a higher end unit? Out here, all the houses have original hard wood, which refinishes. It's beautiful. You can stand it however you like. We have all a nice cherry stain on them all. And it looks good and it holds up goods. I use it for everything. Great. If not, definitely laminate over carpet where you can. I only do carpet in the bedrooms. Okay, cool. Cool. What do you do about a tenant who has a dog that barks incessantly? And I guess the question is, do you allow dogs? But we'll get there.

The tenant paid the security deposit, but their neighbor is threatening to call the police. What do you do? Okay. For us, I usually let the neighbor handle that. Again, I feel like you can't control every little thing. If you have a dog that's driving a neighbor crazy, that's going to be between the neighbor and that tenant. I try not to get involved, short of maybe letting the tenant know that this neighbor is going to call the police on you. And for that reason, we don't allow dogs at our apartment building because they will be barking and disturbing everyone and I'll be getting one of those calls per day.

Yep. Cool. Gotcha. All right. Final question of the fire round. What projects do you deem as DIY? Nothing now. I've actually made it to the point where I can have a screen door handle that's coming up and I purposely won't do it myself because I feel like I need to focus on more e-mith mentality, more using my, my, my, my, time for better use than putting a handle on a door. Yeah. That's great. I've been actually trying really hard lately to make a point to not do stuff. Even if it's like, even if I'm there and I have a screwdriver in my car, I've been trying to just for principle make a point not to do it and rather pay somebody.

You have to. Otherwise I feel like you never get out of that. Yeah, I think you, exactly, you have to draw that line in the sand. And I'm not very good at it yet. Like I still, you know, I fall down sometimes and I go and put up a door or something. Oh, I, uh, we went and painted one of our rentals a year ago because my painter, blew us off last minute. I thought, I'm paying you guys how much to paint this place.

I realized after that weekend that it was well worth what I was paying them. I regret it every time I do it. I always say, oh, I could go do this. I go do it. And then I'm like, God, I'm stupid. I'm an idiot. You know, like, you think about it ahead time. It's really easy, whatever.

It's 10 minutes and three hours later. It's working on your business versus in your business. Absolutely. Yeah, for sure. Fantastic. All right. Well, with that, why don't we move to the famous four? This is the famous for our famous four questions.

that we ask everybody at the end of each show. And we'll start this one with your favorite real estate book. I've got to go rich dad, poor dad. All right. All right. Sorry, I know, but it's good. That's good. I agree.

What is your favorite business book? Actually, I don't think anyone said this. Correct me if I'm wrong. I like Warren Buffett, the snowball. Somebody actually did just say that. I'd never heard of it, but it was just like a couple weeks ago. I don't remember what show it was. It was a couple of short of.

ago. Yeah, somebody just mentioned it. Yep. Yeah. So you're not original. Sorry, Josh. Which one are you talking to? Both. All right. Cool. So yeah, I've not read that one yet, but now that two people have recommended it, I kind of have to. What about hobbies? Hobbies. Skiing. I grew up out in Lake Tahoe. I still actually just got back from a trip there last week.

Still love that. Play on a softball team out here. I obviously love the flying. We have our small little Cherokee that we take up as much as I can. Not enough, but I love that. I love that. I mean, you manage 50 units now. You have a full-time job. You still have time to ski, take vacations, do fun stuff. I don't have cable TV.

I don't have time for that. Nice. Okay. That explains that. Do you have kids? No. Okay. And that helps.

Yeah. Another reason, Josh, you and I are like, we're brothers right there. likewise and some beautiful cats. All right. Final question. We finish this up now. Final question from me. What do you believe sets apart successful real estate investors from those who never get going or from those who fail?

Oh, it's action. It's the ready fire aim. It's, you know, 70% I think action, maybe 10% having the resources and another 20% just being willing to learn more. I learned basically 100%. of what I know after I had two rentals. And I know some people that know so much, they can probably manage 100 units right now,

but they're scared to get there one because they spend all their time analyzing. Yeah. Yep. Melissa paralysis. That's awesome. Well, listen, Josh, it's been an absolute pleasure

despite the fact that you're up there in Detroit. No, seriously, man, really, really appreciate it. Where can people find out more about you? Bigger Pockets definitely network on there and that's probably the best. Right on. All right. Cool. Well, listen, thanks so much for being on the show. For those of you guys who are listening and want to chat with Josh, definitely hit him up on his profile on Bigger Pockets. You could find a link to that on the show notes at biggerpockets.com slash show 64. Also, if you've got questions about the show in general, definitely and ask any of us a question on the show notes

at that same link. And that's really it. Listen, we appreciate you coming. We appreciate you being on board. And I look forward to seeing you around the site. Great. Thanks for having me, guys. It's been fun.

All right. Awesome. Thank you, Josh. And Josh. Yeah, yeah. All right, guys. So that's show 64, the Bigger Pockets podcast. We hope you enjoyed it.

Hopefully you learned a lot. I know there's always some good nuggets to take away. And I think Josh was fantastic. in sharing some of his wisdom. Make sure, of course, if you're not already on bigger pockets to jump in, set up a account and get active, and you two can one day own 50 properties in five years while working a full-time job. Otherwise, look for us on Facebook, Twitter, Gplus, YouTube. We're all over the place.

Follow us, get involved. And good luck to you in your investing. I'm Josh Dorkin, signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast.

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