BiggerPockets Real Estate Podcast - 928: 124 Units in 4 Years by Only Investing in Small Towns and Tiny Markets w/Dylan Osmon

Starting point is 00:00:00 Hey, everyone, and welcome to the Bigger Pockets real estate podcast. I'm Dave Meyer, joined today by Mr. Henry Washington. Thanks for being here, man. Hey, thanks for having me, man. This is always a pleasure. Yeah, and today we're talking about something I know you and I both have a passion for, which is picking the right market. This is obviously something that's on top of most people's mind, and I personally spend a lot of my life looking into different real estate markets, both professionally for my job at Bigger Pockets, but also for my own personal portfolio. But the truth is, you know, after doing so much research into this stuff, what I've found is that you can find deals in almost any market. You just have to know what strategies work in each market.

Starting point is 00:00:43 And today's investor story, we're going to hear from someone who's making deals work in a place that I personally have never really considered investing. That's right. Today we're going to talk with Dylan Osmond. And Dylan shares exactly how he's finding and making deals happen. in small towns. You'll also hear about things he's changing in his strategy today that can apply to any investor. Yeah, I'm super excited about this because I think, you know, a lot of times I'm personally biased. I overlook small towns.

Starting point is 00:01:12 I kind of just look at big metro areas and look at these big macroeconomic trends. But there are obviously deals to be had and strategies that work and advantages in investing in small towns. And we're going to hear all about that from Dylan. So let's jump into it. Dylan Osmond, welcome to the show. Dylan, you did your very first deal back in 2020, which is a pretty bold decision, I might say. I don't think a lot of people were doing their first deal in real estate back in 2020. But kudos to you for doing it.

Starting point is 00:01:42 But it sounds like it didn't actually go the way you were expecting. So can you just tell us a little bit about that deal and maybe a little bit about what you learned from it? Yeah. So I locked up the deal before COVID kind of started coming across the U.S. Anyway, so kind of building out this story, I had taken a corporate job. college and this job was a long ways away from home so I was kind of out of my element and it was a commodity trading job and I was working that I was in my education phase of that job and in the middle of this job well I guess COVID hit and in the middle of this job I went and bought a triplex and that was in

Starting point is 00:02:18 March of 2020 and about June of 2020 I got fired from that job so I was living about 45 minutes away from the property it's down in south Mississippi and And I had no job, really no money, and a really crappy property that I had to fix up. So a lot of lessons came out of that time. And I've got some great numbers on that property, man. It's stupid kind of what I bought it for. All right. Well, let's dig into that a little bit.

Starting point is 00:02:45 I want to hear a little bit more. So you bought a triplex. It sounds like it wasn't in great shape. What was your intention? What was your business plan when you bought that property? I was listening to Bigger Pockets at the time. I always knew I wanted to own real estate. I didn't have much of road map, but something in me just kind of made me want to buy real estate.

Starting point is 00:03:05 I think it was probably listening to Bigger Pockets. That property was on the MLS. It was in the time you could still buy properties on the MLS for good prices, right? So I locked it up for 45 and with like $2,000 towards closing cost. And by the end of that, we had the inspection done. And the inspector was like, this is the worst property I have ever been in. Well, when you said 45, I was like, where's your? You're missing a zero. Like, there's not enough digits in that in that price right there.

Starting point is 00:03:34 45,000 for a triflex. It gets better. It gets better. So there was like a pool of water underneath this thing in the crawl space where like toilets and bathubs have been draining just straight into the crawl space, right? But this property had a lot of pros to it. Like they had just submetered all the water and the electricity. It had a new roof on it. So I had all these things, but I was just kind of blind to the obvious. So anyway, I renegotiated down and we ended up getting this thing. Wait, hold on Dylan, I have to ask you something. Like, I know people call properties a shi-hole, but like, was this literally a shi-hole?

Starting point is 00:04:06 Like, there was just a pot. This property had a weird thing with chickens. Like, there was chickens living in the crawl space. There was a chicken leg that was tied up on a tree when I bought it. I don't know. There's just a bunch of stuff going on. This sounds like the most Mississippi property I've ever heard of. It was rough, man.

Starting point is 00:04:22 It was a good one to cut your teeth on, I guess. But I ended up closing that one for $33,500. and this was a triplex, okay? And the total rent coming in at that time was $1,000 a month. That's what each tenant was paying like $300 and something. So I mean, it was a 3% deal, right? Like I was sitting here the whole time and even though the property was terrible, I was like, what am I missing here in the numbers, this and that, right? So I bought the property and yeah, it just started going downhill from there. Even though they say tenants are paying this much money, I came to find out they weren't paying anything. In fact, like the last tenant hadn't paid in like five months. So I started right off the bat

Starting point is 00:05:00 with an inviction and then a remodel. And then I just realized what kind of mess I bought myself into. So this was all going on. I was working a full-time job and then I got fired from that job. So it was just a weird season. I kept working on the property. I learned that I'm really not good at construction. But I believed in the property and I kept going at it. So little by little, I fixed it up. I did a lot of them at work myself and just horrible, dude, just horrible. So I just want to highlight a few things for people because I think your story is one that will resonate with either a lot of new investors who bought their first property and it didn't go as planned or with people who are scared to jump in because this is what they're scared of, right?

Starting point is 00:05:47 They're scared of buying something where the problems are so massive that they don't know what to do. And you did. You bought something that had a lot of problem, like big problems, not little minor things, right? And then on top of that, you lost your job. So can you give us a little more specifics on like how much you had to put into this property to fix it up? And then how you went about getting that done after you lost your job. So to be honest, I really don't know because I didn't know how to calculate like a rehab budget back then. All I knew was that I had, I had like maybe five grand. and the bank account saved up. So during that time, this was a summer. Like, I was doing part-time roofing work. So I was in South Mississippi on metal roofs. And, like, you know, it's a really low season of life. And I just did what I had to do for part-time work.

Starting point is 00:06:38 And I sold out my stocks. I may have had, like, two or three grand of stocks that I accumulated through college. And so sold everything out and just kind of fixed it up. Little by little, man. And luckily, I was going to a local Ria meetup at the time. I met one of my now partners, but he was kind of giving me guidance through some of this stuff on like how to do construction and the right ways to do this and that. But I just, it's so silly, man. Like looking back, if I would have known how to raise private capital or if I would have known how to

Starting point is 00:07:08 hire contractors or leverage partnerships, like that deal could have been 10 times better. Give us a little bit of the like the financial impact. So you basically put a bunch of sweat equity into this and you had people kind of guide you through what you should or shouldn't do. and then kind of talk to us about what that did to your number. So how did it end up for you financially? Yeah, by the end of it, I had put in about 20 grand, I want to say. So I was all in about $53,000. And I ended up selling that property for $70K at the end of the year.

Starting point is 00:07:41 I was just so emotionally done with that property. I was just ready to get rid of it. And so, I mean, I made money. I made $13 or $14,000, but probably learned $100,000 worth of education. We have to take a quick break, but stay tuned. We have more from Dylan and his investor story right after this. We all joke that rentals are passive, but if you're spending nights matching receipts

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Starting point is 00:10:58 Terms and conditions apply. Hiring, Indeed is all you need. Welcome back to the Bigger Pockets podcast. Kudos to you, Dylan, because a lot of people would go through that experience, buying a difficult property and losing your job and think that real estate wasn't for them. So what inspired you to keep going and made you think that real estate actually is for you after this difficult first experience? I mean, I made money on the deal.

Starting point is 00:11:23 And so I'm a type 8 enneagram. So like one of my fears is being out of control. And in that season of getting fired, I realized just how risky having one source of income is from a W-2 salary. And like I never wanted to be put in that position again. So I think it wasn't the last job I ever had, but I think it just put a fire under me.

Starting point is 00:11:43 Like I'm never going to be dependent on a salary or a job. Like, I'm going to be in control from now on. And so where'd you go from there? What happened after that first deal? Yeah. So the following January or February, I took a job. And again, like, I didn't know any construction. And I knew at the time, if I wanted to continue doing real estate, I needed to learn the construction side. So I don't know if I planned it this way, but it worked out nice. I was playing a gig one night. And this guy walked in and I kept hearing him talk about development and this and that. So I approached him. And I was like, hey,

Starting point is 00:12:17 I want to take a job with you. And so I was hired on as a commercial project manager. So I was managing like job sites for banks for like smoothie kings, little restaurants, and then we were doing custom homes. So I got to get a feel for what it's like to manage construction. So I wasn't the guy swinging the hammer, but I was a guy that was kind of lining subs up, which was really great education for the next three years.

Starting point is 00:12:40 You know, I think that's something that people talk about a lot, but maybe don't really do or follow up on. But getting a job within the industry as you're starting to learn is so extremely valuable. Because when I got started, I knew nothing about construction either. Like the way I learned it was I went and found somebody who was good at it. And I just followed them around all the time. It was just anywhere they went. If they went to houses, I went to go look at them too just so that I could learn.

Starting point is 00:13:12 And I think it's a great, it's a great way to force yourself to get experience without as much, well, without any of the risk, essentially, of being an owner. Yeah, Henry, I totally agree with you. I think there's, there's so many different ways to get into real estate. You just have to think about what resources you have at your disposal. And certainly money is an important resource for buying deals. but time is an equally important resource, and so are skills. And so if you can invest your time to learn skills like Dylan has done here, that's an excellent way, especially early in your career, to establish a really strong foundation from where you can invest from. I mean, I wasn't making that much money, but in my opinion, I was learning a skill set that I needed to know. And I needed a job anyway just to survive.

Starting point is 00:14:05 So I was making like 40 grand a year, which isn't a ton. But again, that education piece just leapfrog me forward. So, Dylan, one thing I know about you is that you've cut your teeth investing in real estate in some would say smaller markets, some would say more affordable markets. Can you quickly tell us, like, which markets you're mainly invested in? Yeah, so today right now, I'm mainly investing in Mountain Home, Arkansas and the GTR region of Mississippi, which is Starkville slash Columbus. So for those of you don't know, like Mountain Home, the city limit sign says, I think like 13,000 people. You know, the county's probably like 50. So, I mean, it's a small town.

Starting point is 00:14:45 And it's the next nearest town that's the same size as an hour away. So like it's kind of in the middle of nowhere, too. It's not like a suburb of a big town. It's a small town. And then the same thing down there, those cities, those towns are, you know, 20,000 people. So I remember really questioning myself when I was getting started like, am I putting myself in a pickle trying to buying these super small towns. Like, this is not an appreciation market. This is very much a flatline cash flow market. And am I doing something bad in doing that? And I remember meeting some really

Starting point is 00:15:15 wealthy people and they're like, man, you can make as much money in a small town as you can in a big city. It's all relative. So there's pros and cons. I remember listening to bigger pockets and hearing people talk about like vetting property managers. And at this time, I had maybe a couple rentals and I was needing somebody to manage them. And they were saying like, yeah, I mean, you just, you ask these questions to the property manager to see if they're a good fit. Like, do they have an online presence? Are they keeping good bookkeeping, things like that? You know, how do they handle their operations? How big are they? This and that. And all the local property managers, there was only like two of them. And neither one of them were online. The only way you could find the listing was by calling their office

Starting point is 00:15:57 or driving by and picking up a flyer. So I remember listening to these episodes. and be like, well, I don't have any of that. So like, is this, like I said, is this, am I putting myself into pickle buying here? Because like there's nobody to use for this. And, uh, same thing with like contractors, man. Like some of these small towns, obviously we still have contractors, but you hear people talk about like, you want to find a, a investor friendly contractor. I'm like, well, we got 20 GCs in this town and they're all booked up eight months out from now.

Starting point is 00:16:28 So like, what do I do? You know? So that's, that's one of those cons on a small town. but I also found I was kind of the only guy in town sending out direct mail. I was the only guy kind of beaten the streets, finding off market deals. So the competitive side of it was really low. So it seemed like I was buying properties at great discount. So something was working right.

Starting point is 00:16:49 Yeah. I mean, I think that's a great picture of like what it's truly like to invest in a small town because I think a lot of people get enamored, especially beginners. Like they just heard you bought a triplet. for, you know, sub $30,000 or $40,000. Like, and I'm sure that can be appealing to some people, but it doesn't come without its risks and its challenges. So of those cons of struggling to find contractors because they're not enough and struggling

Starting point is 00:17:17 to find property managers because they're only a couple, how did you or are you overcoming those challenges in your business? So I kind of decided that, and I think this maybe applies to larger cities too, but especially in the small town, like I want to get big enough. that I can have those vendors, whether it be a contractor or a property manager, I want to be big enough in my portfolio that I can have those positions in-house. So my goal is to get at least, you know, 50, 60 units in every market I'm in, because at that mark, I can start bringing these things in house and I can start controlling things. And, you know, there's kind of like that dead zone

Starting point is 00:17:56 between like 10 and 50 units where it's really difficult because you have enough units that it's keeping you busy and you have enough projects that is keeping you busy, but you don't have so many that you can start hiring positions to take care of that. So when you have five rental properties, that's fine. You know, you can handle that. But when you got 25 rental properties, it's really difficult until you kind of hit that mark where you can start hiring folks. My goal is to scale up as quick as I can to hit that mark. And so in the in-between phase, you just kind of do what you can to keep the lights on. Maybe it's working with somebody that isn't the best until you can hire it yourself or manage it yourself? Yeah, I mean, that in-between phase looks like bad operations,

Starting point is 00:18:34 if I'm being honest. Like, it looks like you're learning a lot of mistakes because you're just not efficient yet, right? You're just trying to do everything at once. Like, you're, you're the solopreneur. You're wearing all the different hats. It's a really difficult phase, but it's one everybody goes through. You know, everybody I've talked to that has 100, 200, 300, 300 units. They talk about that phase. Like, you need to get this big as fast as you can. Well, Dylan, how small the town are we're talking here? Because is it big enough that you can reach that level of scale with your strategy? Because you seem very ambitious.

Starting point is 00:19:07 And I'm curious if you're going to have to move to multiple markets to meet your goals. Have you bought all the houses in Mountain Home yet? Yeah. It's a company town now. And it's Dillon-Ozman's company. So that is a concern. You know, at this phase in my investing, I'm trying to buy larger commercial assets. So apartments, you know, mobile home parks, things like that.

Starting point is 00:19:29 And there's only so many crappy old apartment complexes that I can go find and talk to in a town of 13,000, 14,000. So I know I will hit that limit, but I'm okay having operations within, you know, a 40 minute, maybe even 60 minute circle. Because at that level of scale, it's not so crazy to send, you know, a maintenance guy to knock out two or three orders or send the property manager to go inspect the property once a week. you know, like I'm still, it's still making sense on paper to me to have that in-house and keep it. And within an hour circle, I mean, there's still plenty of deals to buy. Like down in Mississippi, the town's 20,000, but the county's still 60,000. So I mean, you're still, there's still plenty of apartments to go fine. That sounds great. And so just to give our audience some context here, how big is your portfolio now? And have you gotten past that dead zone, as you called it?

Starting point is 00:20:21 Yeah, total portfolio. I'm looking at about 124 units. And now, in, in, in, full, full honesty, about half of that is in partnerships. So I don't have 100% equity of all that. But that's also spread across three different markets. So, well, in two of the markets, I've hit that 50 unit mark where I'm able to hire people in that market. So, you know, the, the first quarter of 2024 has been hiring people because I hit that mark just recently. So it's been kind of a new phase of hiring people and being a boss and building out these operations. Awesome. I mean, that's very impressive. I'm curious. I mean, just in four years, how did you go from failed deal to 120? You know,

Starting point is 00:21:03 are you flipping homes to get equity? Or you're bringing in capital partners? How did you scale so fast? So 2021, early 2021, when I had the commercial construction job, I did the best thing I ever did, and that was invest in education. And I just come out of college. And it was almost weird for me to spend that amount of money to get education. But I did it. And I'm so happy I did because it taught, me how to find great deals. So what I'm really good at is finding really great deals. I'm really good at off market, direct to seller marketing. I'm really good at finding stuff 60, 65, 70 cents on the dollar. In the beginning, I leveraged partnerships really hard. So because I was buying at such a discount, I could bring in a partner. And I've got several partnerships today and each one kind of

Starting point is 00:21:48 looks different. But those partnerships enabled me to scale quick, even though I was like 22 or 23 without, you know, any income or any, not much credit either. So, you know, those partners had great faith in me in the beginning and I'm glad they did. And then also along the way, I got a couple of private lenders on my books and they helped me scale tremendously too. So I was buying great deals. I was taking out lines of credits. I was using private investors. I was using partnerships. And I found great deals. I mean, it all started with that. So are you saying your ability to find great deals is what helped you, uh, scale because it helped you like leverage your risk. Like how did finding the great deals really,

Starting point is 00:22:28 really help you accelerate? Well, when you're buying deals at retail value, you can't recycle your money, right? When you buy a deal at 100% of what it's worth, you're typically going to put 20, 25% down, whatever it is, right? And you're typically not going to be able to get that money back out for a decent while until the appraisal will cover, you know, 80% loan to value, whatever it is. But when I buy great deals, I can get creative, right? I can bring in a partner and I can say, look, this is a great deal on paper. I want you to bring the down payment. Maybe I want you to bring the expertise in this field, whatever it is, but this is a great deal on paper.

Starting point is 00:23:05 I'm going to operate it. I'm going to run the deal. I'll manage the contractors. I found the deal. You know, write me a check. Let's go take this thing down. And just an example of that, like the second deal I ever bought was a single family home. I found it for $32,000.

Starting point is 00:23:20 It was running for like $6.50 at a time. So, I mean, it was a 2% deal. And I didn't have any money. And I could have, looking back now, I could have just taken it down solo, but I didn't know better. But anyway, I bought it with a partnership and the partner brought the full purchase price. We instantly refinanced him out. And now me and him own a rental that's 50-50 and we don't have any money in it. We sold that rental a year later for 65 grand.

Starting point is 00:23:42 So, I mean, in his shoes, he's doing great. He got his money back and made 15 grand. For me, I made 15 grand. I didn't have any money in it. So you bought a house for $32,000 and you found a lender who just probably pulled it out of his couch cushions and you bought a house and everybody wins. He was a partner in that scenario. So I mean, we had a full LLC and everything. He was a 50-50 partner. Back at that time, all I knew about was partnerships. That's the only way I could structure

Starting point is 00:24:07 a deal. Now there's a lot more tools out there like private investors, hard money lenders, you know, lines of credits that I have access to. So you start building your tool belt out and you can take down deals better. We've covered what Dylan has done in the past and how he's built out this tool belt, but stick with us. Dylan is going to share what is working for him today after this quick break. When I bought my first rental, I thought collecting rent would be the hard part. Nope. The admin crushed me. Every night was receipts, tax forms, and checking who was late on rent. I kept thinking, if this is one unit, how do people run 10? Base Lane changed that. It's Bigger Pocket's official banking platform that handles expense tracking, financial reporting, rent

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Starting point is 00:27:33 deals. And there are ways to find financing first. But what Dylan's talking about is finding deals first and then going on to find financing. And that's a really important distinction here because if you were to approach a private lender or to approach a partnership and say, hey, do you want to invest with me? And they'll say, okay, maybe do you have a deal? And you say, no, they're going to be like, okay, come back to me when you have actually something to show me. But if Dealin is approaching potential partners, potential lenders with a killer deal, you're going to get a ton of attention for that kind of deal and people might even start competing to work with you. And I think that's so important and why finding deals and being able to find these great deals is so

Starting point is 00:28:19 important for scale because it just attracts so many people. I myself as someone who invests in some lending funds and does some lending, like I don't want to do the hard work of finding deals. I want to partner with people like Dylan who are going to do that work for me. Yeah, absolutely. the number one skill you can have today is learning how to find great deals what does a great deal look like and how do I find those deals that's a number one thing you can learn absolutely sounds like you're doing it really well Dylan so tell us a little bit more about the deals that you're doing today what's working for you in this environment yeah so I switched probably beginning of last year to really focusing on larger commercial stuff so I was flipping homes I had a good year of flipping homes last year so my goal now is like anything single family unless it has long-term hold value on flipping it. And the proceeds from that are going into me buying larger commercial assets. So the fun thing, I got really good at finding single family stuff and flipping that and finding rentals. And then I switched to the commercial side. And what that

Starting point is 00:29:23 looks like for me is just very relationship built. So I love calling owners who have a lot of doors, a lot of units, a lot of portfolio. And I just want to take them out to lunch. I just want to build a relationship, meet them. You know, that first phone call is not me trying to get a contract. It's me just trying to build a relationship. So that's what I focus on nowadays is building those relationships with these commercial sellers. And it's worked well because out of the 124 units, give or take, you know, at least half of that has come in the last year. So the last year has just been a big bump. You know, I love that you talk about this because this is a marketing strategy. It's a marketing strategy that a lot of seasoned investors use.

Starting point is 00:30:04 You know, I call it network marketing, right? It's you finding deals or marketing through the network that you have or the network that you build. And you, as a new investor, you can be super intentional about this. And it's a fairly affordable thing to do. It just costs you, however much it costs you to skip trace somebody's phone number. And then you make a call. And you set it. You hit the nail right on the head.

Starting point is 00:30:29 The call isn't to buy a deal. The call is to say, hey, I see that you own XYZ property and XYZ market. I'm also an investor in this market. I'd love to just sit down and learn from you and understand how you've been able to do what you've done. And I think there's a few things that are super beneficial for people. It's a lot of these landlords are older. They're retiring out. You know, you've got the silver tsunami happening right now.

Starting point is 00:30:58 So you've got older landlords looking to retire. There's nothing. I've just honestly found there's nothing older landlords like more than to sit down with somebody who's younger who are getting into doing what they're doing and just pour into them. And even if you don't get a property from it, the amount of like knowledge and expertise that they will just willingly share with you over coffee, you take these guys to your local, you know, your local diner and put a cup of coffee in front of them. you might be there all day because they just want to help you.

Starting point is 00:31:32 And so it's a great way to learn. It's a great way to buy deals. And I've also seen that even if you don't end up getting a deal from that seller, they know all the other local landlords and know who is selling and connect you with all these other people and handymen and contractors. And sometimes they end up being your private money lenders. Like it's such a powerful way to find deals. It doesn't cost any money. And I don't think enough people do it.

Starting point is 00:31:57 100%. Yeah, like it's a free way. It's, it's one of those things that's simple. It's just not easy. Okay. It's not fun to pick up the phone and call people you don't know. But it's the strategy is so simple. I mean, just go be nice to people. Go talk to people. Go tell them what you're wanting to do. And it's, it's worked well for me. So one of the things I think people are concerned about when they think about growing a larger portfolio or when they hear about other people growing a larger portfolio is they say, well, that's a lot of risk, right? Especially if you're leveraging other people's money to grow that portfolio. And there's truth to that. It is risk. So how do you manage risk in your business plan and portfolio? It's changed as I've gone on.

Starting point is 00:32:40 I didn't realize the risk I was in the first two years of investing. because, I mean, like my first two years of investing, I was keeping everything I found. And I went broke buying great deals, okay? Wait, after that first deal, you didn't realize the risk that you had. Yeah, I learned a lot of things on that. Risk was, yeah. And I didn't keep that one, right? So that was like almost more of a flip.

Starting point is 00:33:04 But, you know, every deal after that, I kept. I mean, I kept so many deals. In the first two years, I was growing my equity. My balance sheet looked great. but I would have like four grand in the bank account with like 40 units and like that's risky dude I mean HVAC goes out and I'm like scrambling to find money right and it almost seemed like I was using every deal I bought I would buy a great deal I'd pull out a line of credit go buy another deal and I just kept doing that and it's fine like it worked out but today I'm really focusing on building

Starting point is 00:33:35 liquidity so debt doesn't bother me so long as I have high liquidity so high debt high liquidity is way better than no debt and low liquidity, in my opinion, right? You know, if you have 100 grand of debt, but you have 100 grand in the bank account and the HVAT goes out, you don't think twice about it. But when you have zero in debt and you have $8,000 in the bank account, it puts yourself in a bad spot. And especially when you start having 100 units, like you've got to think about D-Day scenarios because it's just going to happen.

Starting point is 00:34:05 I love this because a lot of, especially newer investors, don't think about liquidity and how much money you have on hand. And for those listening, if you don't know what it means, liquidity is just sort of this measurement of how accessible your money is. So cash is super highly liquid. A rental property is obviously less liquid because you would have to go through this sale, a sale process to access that money. And so, Dylan, I'd love to just get your input here and share your advice to our listeners

Starting point is 00:34:34 here. How do you come up with the right amount of liquidity? Do you maintain some ratio of debt to liquidity or how do you think about the right amount of reserves for a portfolio of your size? Well, for my size, I think it's, I saw a formula the other day and I don't have it in front of me. But I mean, you'll know what feels right. I think, I think probably at least two or three months worth of expenses, you know, if I had to kind of spitball something out there. But probably more so in the beginning, like I said, I was keeping everything I found, which is fine. I wish I would have flipped a few more homes back then.

Starting point is 00:35:08 I wish I would have just gotten a paycheck back then and not instantly like, you know, leverage out everything I found. So it's not even if your goal is to buy rentals, like stay on that goal. It's a beautiful goal. And at the end of the day, that's what's going to make you wealthy. But don't be afraid to flip now and then. Like you're going to have payroll. You're going to have expenses. Don't be afraid to flip because you need that marketing budget.

Starting point is 00:35:31 Yeah, that's, you know, a lot of landlords or a lot of real estate investors would tell you. the opposite, right? They all say, keep everything, but that's not realistic when you have a business to operate. And, you know, I just kind of want to hone in on something you said. You said, you'll understand what feels right in terms of reserves. And I, and I being a landlord with a similar portfolio, like I know what you're saying there. Because what you're saying there is once you start operating your portfolio, you start to get a sense of the rhythm of when things go wrong. What goes wrong, when it goes wrong, what time of year, how much it typically costs you. And because you see your business every year, you're able to kind of predict when I need money. Like, I can tell

Starting point is 00:36:14 you right now, the months of the year where I'm cash poor and the months of the year where I have more cash in the bank, it is like the tide. Like it's the same every year. But you don't know that until you start operating. And so how I managed reserves until I got to a point where I understood the ebb and flow of money in my business was I would just use the bigger pockets calculators where you could put all of your expenses. So you know, you budget, you know, 5% for vacancy and, you know, 10% for CAPEX and 5% for maintenance. And then I would go into my bank account and for every single property, I'd calculate those percentages and I'd have a bank account. I'd move the operating money for those properties into an expenses account. Now, they're just two

Starting point is 00:37:00 separate accounts. Like, they're both in the same bank. But I always knew that every single month, my expenses would get moved from my operating to a maintenance account. And then I would start to see throughout the year, well, am I actually using everything in here? And so then at the end of the year, I could move some money back over into my operating account. But I always knew I had this account with my maintenance, with my maintenance money set aside. And it just gave me a peace of mind. Like I said, it was just two separate accounts. It could have all went into one. one account, but having it actually be moved into the other gave me a sense for like, what am I actually spending on expenses and help me be able to budget that better in the future.

Starting point is 00:37:39 So wait, not everyone creates really detailed cash flow forecasts and does like really nerdy spreadsheets to figure out what there. Is that just me? That's just me? Okay. I should have to like now in this phase of my business, I'm thinking more about operations and bookkeeping and like, what do the financials look like? But in the beginning, I was just a deal finding maniac. That's all I cared about. And the truth is, guys, like, while you're scaling, you're going to be cash for. Like, you're going to hit cash crunches. So you either need to, you either need to learn how to raise money via private investors

Starting point is 00:38:11 or you need to learn how to have partnerships to help your liquidity out. That's such a good point, though. You're not going to be good at everything when you first start. You know, like, I think bookkeeping finance is a common one that people don't develop until a few years into their portfolio. And I do appreciate your honesty, Dylan. Like if you're scaling at the pace that you have or Henry has, like there is sacrifice there and there is risk there. Obviously, you de-risk it by having great deals and doing all the stuff you talked about.

Starting point is 00:38:40 But being cash poor and, you know, scaling quickly does come with some risks. So I appreciate you being candid. This has been an amazing conversation, Dylan. I really love hearing about your story. Before we get out of here, can you just walk us through an example of a deal that you have done recently that you think would. would be educational for our audience. Assuming most people are getting their first deal, you really need to adopt the mindset that this is a people business, okay?

Starting point is 00:39:06 You know, I didn't touch on this in the small town thing, but my brand is really important here, right? If I ever screw somebody over, that can fly over the town very fast. So it's a people business. You have to treat people right. You have to do what you say you're going to do. And I actually think that helps you out, especially when you're doing direct-to-seller. So if I'm walking into a house, I'm telling them I'm making money on your house.

Starting point is 00:39:27 I'm telling them what my numbers look like, and I'm telling them what their best option is, even if that's not me buying it. So it's a people business, treat people first. You need to walk into every house on how you can help that person out, not yourself. So the deal I have is a simple flip deal, and I'm about to list it, or actually I got listed yesterday, but we bought it early November of 23 for 100 grand, and the seller was, she had a couple of concerns. She had a lot of stuff in the house.

Starting point is 00:39:55 The house needed a lot of work. and she was really worried about where she was going to live. She was tired of yard maintenance. She was tired of such a large house. Like those were her reasons why. Okay? So she had equity in the house. I offered her 100 grand.

Starting point is 00:40:10 The house had a ton of stuff in it and there was a lot of things I couldn't see. There was a lot of risk there. It just, it was one of those old homes that was kind of never ending on how much work it needed. So I offered her 100 grand and that she could live in one of my rents for half off rent for, I think, three years. okay so and that I was buying it as is and I was taking care of everything in the house and I do that on every house but I tell I told her like take what you want leave what you don't okay so that takes the fear of her having to clean up the house and anything like that plus after closing she had two months to move her stuff out so bought it for a hundred grand my original intention was to wholesale it just clean it up and relist it but we started rehabbing it and kind of kept going and the line cut kind of kept getting good and pushed forward. So it's more of a flip now. We've put 15 grand into it. We have about 5 to 6 grand of holding costs. I used a private investor to take down the deal. And we listed it yesterday for

Starting point is 00:41:08 215. So pretty good flip margins. It should net about 70 to 80 grand, hopefully. And I love the deal, man. I mean, it's just a textbook deal on how you help people out. Absolutely. This is a textbook. That's a solid double or triple in terms of in terms of a flip. And it's a, in a small town market. I think one of the other things people don't realize is that you can make, you know, 50 to 100 grand on single family flips in smaller markets. But what you talked about there is exactly why I love single family and small multifamily real estate. It's just easier to have a positive impact on the people who you're doing the deal with. I've done a very similar things where I've got a tenant right now in one of my units who has discounted

Starting point is 00:41:56 rented rent and he's been there for almost two years now. And he was very, very, you know, it was a very difficult situation for him and me helping him with a place to live. Like, his financial situation was going to put him in a position where we'd have to fill out a ton of applications and get told no a whole lot before he moved. And so I was able to remove that barrier for him. And it's just not something you get to do in larger multifamily real estate. And so thank you for sharing that. And thank you for being so honest and vulnerable. with us about some of the problems and challenges you faced. And it's great to see the success that you're having and how good of an operator you have turned into. Thank you. Thank you. Thank you.

Starting point is 00:42:35 Thank you. Thank you. Thank you. Thank you for joining us. We appreciate it. Of course, guys. Thank you guys for having me. Thanks again to Dylan Osmond for joining us today. That was an excellent conversation. Learned a lot and really impressed by Dylan's story. If you want to connect with him, as always, we'll put his contact information in the show notes below. Henry, man, always good seeing you. Thanks a lot for being here. Thank you all for listening. We'll see you next time. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform.

Starting point is 00:43:26 Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk.

Starting point is 00:43:51 So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 928: 124 Units in 4 Years by Only Investing in Small Towns and Tiny Markets w/Dylan Osmon

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