KGCI: Real Estate on Air - How to Build a Rental Portfolio

Episode Date: April 16, 2025

So I think like when you're when you're working in the industry, this is such like a parallel skill set to apply. There are different like areas of knowledge and expertise, but the skills are the same of like organizing, communicating, optimizing. And one thing I think that's interesting is you have your turnovers in that like June, July timeline. That's specific to your market, right? Like you've been strategic with that. Can you speak to that a little bit? Correct. So I started realizing that when I had leases up in October or December, people are typically moving to my area because they're in a graduate program at Johns Hopkins or University of Maryland. And if they are graduating from undergrad, that happens in June. They might go home for the summer. They might not.

And their programs usually start in August. So I was finding that I was either having to lower rent slightly or I had way less inquiries in other seasons. And that might be true if your market is in a really desirable school district or people are generally relocating from the military. for a certain like PCS date or whatever. So yeah, I just trial and error, honestly. It took me probably seven years until I realized I don't want to be turning over property all year long. It's one of the most labor intensive parts of owning these rentals is filling them. So I feel better knowing that I can at least isolate that painful portion of it to just three months out of the year. So it's partly for my own sanity that I learned over time and because it's the most profitable time to do it.

I love it. And I assume there's some point where you had this aha and you started changing. changing your leases to be like longer or shorter to renew it the ideal time. 100%. I was like, oh, it's October 10th. Great. You're signing a nine and a half month lease. Yep. Thanks. Welcome. Yep. And it worked out well. The other thing is people always ask me like how much passive income do you make. And like I don't think they have any idea how many hours go into creating this passive income. Whoever created that word passive should be slapped. huge misrepresentation because unless you fill these rentals, they are just massive liabilities because you have to pay the mortgage payment every month. So if you are not actively managing

them and placing quality tenants and repairing items in the home and doing all those things, there is no income at all. And it's not passive. So unless you hire a great property manager who is going to make all the decisions for you, including like price your repairs, you really have to be willing to trust them, but you would then need to factor in like the cost for that. So it's typically 10% of the gross rent monthly, a 5% vacancy rate, roughly 8% is what my homes are using for maintenance. My homes are all built in the early 1900s. So that will be something that you'll need to kind of evaluate over time. And then it's one month's rent fee to a property manager to fill the home. So if you don't want all this headache and all this active management

for your rentals, then you need to factor that into your initial analysis. I'm so glad you said this. And it's funny, you've chosen to self-manage. And we're going to talk about that in a second. And that's the exact decision I made with my Airbnb for two reasons. And I know you and I are so like-minded. Number one is there's the cost of it. But number two, it's the quality control and the like the leverage that you have over how things are done. So you're self-managing, you're saving that 10% on property management. And you told me you are also really on top of not having turnover. Because I think when you're the owner, you obviously have all the skin in the game, right? You have all that motivation to be like, no, no, no, I'm going to do everything necessary to make sure that

there isn't a month gap between when my last tenant moves out and when it re-or, or longer, right? Like, there's just a different sense of urgency and buy-in. Yes, it's scary and it can kill your cash flow. Like, some of my homes, I think my highest one rents for $4,350 a month. Like, if that sat for two months, there goes $8,700. Like, that's a huge chunk of my income for the entire year. So just not to mention the power and the, like, the water bill. Like, it's 10. That's, 10 grand easily. It's really expensive to have vacancy. Yeah. So, and I know you've experimented with having property management. You, you know, you hired a property manager. You've gone back to self-manage. Is there any like takeaway you want to share about that? Sure. So I decided for nine months last year,

like you mentioned, I switched to resale and that had a little bit of a learning curve in itself. And my business took off really quickly because I was working 24-7 again. So I decided to try property management for nine months. And for me, it just didn't work out. But my goal is to try again because I dreamed of being an investor, but not being a landlord, a showing agent, an emergency maintenance contact, and admin, you get the idea. For me, it was hard to watch repair bills coming in, then were higher than I knew I could get things fixed for. I'm a little bit of a control freak, and that was tough for me. Another part of it was my tenants were constantly unhappy with the standard of service and the response time from the management company. And they had my phone number because I had placed these tenants that

summer. But I think this is common for someone who has been managing themselves and is so personally invested to pass off your babies that you just spent a decade working so hard for to somebody who isn't going to do as caring or as detailed of a job as you. That's always how it's going to be. Ultimately, the property management company was just newer than I had realized and didn't have the systems in place for communication with me or the tenants that they had promised. So we just wound up parting ways amicably. And like I said, I would like to try a different company again in the future 100%. Yeah, and I don't know what your thought is, but I felt the same way with my Airbnb. I'm definitely in a point where we had a ton of startup costs. And then the Airbnb

market has also softened a little bit really throughout the country and certainly in Hilton Head. So I feel like now isn't the time where it makes sense for me from a cash flow perspective to cut someone in. But there are like one thing I've been exposed to that's so interesting being in all these Airbnb Facebook groups is there's like such a spectrum of property managers out there, like in the Airbnb space, they call it co-hosting where you can kind of co-manage with someone. And I don't know if you've thought about this, but I felt that it would be nice to have a co-host handle at least some of the things that I handle for a lower percentage, but then still have exertion and control and visibility over some of the things. I don't know if that's ever

occurred to you, but that's been something that I've been kicking around in my mind for a while. It definitely has. And I loved learning about that on your Airbnb episode and a way that I've implemented that a little bit with my rentals is I do have an admin. I pay her hourly on an as needed basis and she's doing anything that's not tenant facing that she wants to or is capable of doing. Things like checking that rent has been paid and recording the rent, paying invoices and recording how much was spent for some of them, writing leases in the summertime. Sometimes I will have her do like a move out walk through after the tenant has left and I'll give her a checklist and she's just checking off like, yes, the kitchen counters are smooth and shiny.

Yes, the bathroom drawers and cabinets are 100% empty. So I'm having her due task like that, which helps take a little bit of load off of me and has been definitely worth it. So smart. Yeah. And I think that's part of like whenever you're scaling something, it's like figuring out what can you piece out and delegate to, you know, in these little chunks to people as you maybe go to that point of going full bore. But I think that's even something that I learned building my real estate team is there's there's a level where maybe you turn over too much to like a middle person where it can kind of blow up in your face. And I think it can just be hard in business where you, sometimes you have these experiences and all you can do is learn and really maintain that like that student mindset that like it's

never going to be perfect. And all I'm looking for is progress, not perfection. Right. Such a good phrase. I repeat that to myself all the time. Yeah. One other thing you commented on is like needing reserves and managing your expenses. And you had said that you budget about eight percent of for maintenance. And I think that's the stuff that can really bite you. So talk to me a little bit about that. You know, you said to me some weeks you spend $10,000 and some weeks you spend $200. But paint that picture more of what that looks like. Definitely. So that could not be more true. And I've literally spent $20,000 in a week actually last year, the year before last. So I had a total roof replacement on a row home. And when I was doing that, I also decided to replace the

roof deck since it was rotting. And that project, was over $20,000. The same week, I had to install a new HVAC system in another property, and that will happen. So the biggest takeaway from this is you need to be okay with the fact that some years overall, you may lose money on certain properties. And some years, your home might be more difficult to rent. Rent might go down. You might have a vacancy.

You just have to think long term. And if the long term still aligns with your goals, keep moving forward and be patient. I also made more in 2018 when I had five rentals than I did in 2019 when I acquired two more and had seven. It happens, but I think it's almost easier to swallow when you have multiple properties because I thought to myself, oh, I still have 14 roofs that didn't need to be replaced. So it almost made it easier because the other ones were still cash flowing. But those things are going to come up and you are going to be forced to panic sell or something like that if you don't have the assets to handle it. Oh, there's so much wisdom and what you said.

So first of all, hearing about your like $30,000 week, right, with the roof deck and the roof and the age back system, have you found that there's like a magic number, like a percentage of revenue that you keep in reserve? Like that could wipe some people out. So you're a staver. But like, if there anything you can expand on to clarify how you handled that perfect storm? This is going to sound high, but keep in mind that I have 15 homes where these things come up for. If I don't have $50,000 in my checking account to tackle things like that. I don't want to get put out because I couldn't afford a roof and I was forced to sell a property or forced to pay 20% interest on a credit card. So at a certain point, I think it was when I probably

had seven homes or so. I realized that these things can add up so quickly and having like the 15 or 20,000 in reserves that I had back then wasn't going to cut it with this amount of properties. So to weather the storm, I feel comfortable if I have $50,000 in my reserves. I love, I just love a concrete answer like that and how it evolved from this one threshold into another. The other thing you said that I'm obsessed with is you had a situation where you made more the year you had five rentals than the year when you had seven. And that is part of scaling, right? Like there are times where you are just, you're not pulling in the revenue you used to or your expenses are way higher. And again, it's that long-term thought. And then also, I think having a clear plan where you know where things

are going and where things are heading. Is there anything you want to add to that? Because I think that could be where somebody could get spooked and panic sell or question if this is for them, but you kept pushing forward. Can you walk me through your thought process when you realized how the numbers were playing out? I would say just rationale knowing that if I did the right things consistently by staying on top of turnovers and finding tenants and being strategic, that in the end, I was really confident in the upfront analysis I had done, that it would work out long term. And I'm very rational when it comes to business. You have to just be emotionally detached. This is not your home that you're living in and bringing your baby home from the hospital to. It is a income producing asset. So I just thought about long term. I knew that I would need a roof at some point. If I have a 30-year mortgage, I will likely be buying two to three HVAC units and two to three water heaters. And that's part of it. And I knew to expect it. When it happened, yes, I was thrown off and I was discouraged. And I was thinking, well, I added two properties to my portfolio this year. I am going to be wealthy this year. It was disappointing,

but I just told myself to think long term and trust the initial analysis that I had done. So wise. Okay, we've been talking a lot about expenses and reserves. It's not the most uplifting. Let's talk about the money and the income. So one of the things is you have a really creative strategy to generate revenue above and beyond what some of us would call like market rent. And you use this great term baby bedrooms. So walk us through, what is that? How does it work? Baby bedrooms are my favorite. So I generate significant revenue through these baby bedrooms, which in my market, they're often either like a sitting area before you walk out to a roof deck or a party room at the top of a landing or like a big open area at the top of the steps that you

could use for an office. I have basically been converting these areas into bedrooms. Often they are just big enough to fit a full size bed, a tall dresser, and then, just enough room to walk around the bed. They always are actual bedrooms. Like they have a door, they have a closet, but they are really small. In my market, there is definitely a tenant who will take these small rooms in an incredible home versus renting a beat down or neglected rental with a normal size room. If someone's budget in my market is $500 to $550 a month, their options are extremely limited and they're looking at rundown houses. So I have been able to attract tenants who are on an extreme budget to rent extremely small spaces. So in my market, a bedroom with a private

bath, like a large one, could be up to $1,100. So I have, I think, three or four baby bedrooms right now, I think four. And I generate $20,000 a year from these baby bedrooms. And they have individually made numbers on houses work for me that otherwise wouldn't work. Oh, that's such a creative tactic. And I could not agree more, especially like in these times that we just continue to live through with inflation and like housing being so expensive. I feel like there's just more and more demand for, yeah, again, someone that doesn't want to live in a beat up, rundown spot. I don't want to reiterate everything you just said. I just, I think it's such a genius idea. But this did make me wonder, are you renting out the rooms individually? Or is it more that when you find a group of

people that all want to live together, they're sort of hacking it up? Like, how do you actually market that and explain it without it being a huge hassle with way too many people involved? Yeah, it can be complicated. I have played with different models over the years. At one point when rent was lower in Baltimore, I did wind up doing room by room where I had five individual leases for a five-bedroom house. I've partially furnished homes with like beds and common area furniture before. Lately, the market has increased with COVID. So I've shifted back to whole home leases for almost all of my homes since rent and demander backup. There's definitely pros and cons to each. But how I'm handling that is when a group walks in and there's five of them and I have these big discrepancies and

bedrooms. Like the rent might be 4,100, but the owner's bedroom is really worth 1,200 in my head. That's how I'm pricing them. The baby bedroom might be 550. These are young tenants. So usually I can suggestively walk through the house and kind of explain to them. I usually just say, this is how the previous tenants split the rent. They felt that it was really fair. This might help you in your conversations when you're talking about this place. I'm happy to text you like what the split was. And I kind of use that when we're walking through each room because typically the group will have somebody with a higher budget, somebody who is on a serious budget and can barely afford to live with that group. So I'm kind of suggestively telling them, like, how much I recommend them contributing for each room.

And these tenants seem really receptive and appreciative of that. And they usually do split the rent exactly how I suggest. I love it. You know, we're not on video, but I'm like nodding my head aggressively as you're saying as I'm like, I love it. Like one of my favorite mentors, Vlad, always used to say that like leadership is teaching people how to think and sales is teaching people how to think. But in a way, like you said, where you're just suggesting, really good ideas that they're obviously going to take and run with. So I feel like that's like the best of both worlds. You get your whole lease. It's a bunch of people who know each other and want to live together and you can justify that baby bedroom in the rent and help them just understand how to make it work. Because I remember, you know, I mean, I'm a rarity. I got into real estate when

I was 19. Most, you know, people coming out of college, like they are moving to their first rental. They've never crunched numbers on anything possibly. And they just don't know how to wrap their mind around it unless you explain it to them. So I just have. If I left it up to these tenants to split a five-bedroom house up where the bedrooms, some have private baths, some don't, some are baby bedrooms, some are luxurious sweets. They would just wind up arguing or fighting and it would detract from all their excitement about renting the property with them getting in some heated discussion about how unfair it is that so-and-so is paying X amount. So I just have taken all of that off the table and it has worked out fantastically. And I've also learned

how to pitch a baby bedroom that it's a great opportunity for somebody who is on a budget or a minimalist or doesn't want to be in a rundown home, they can live in a house that otherwise they would have to have a $1,100 a month budget to live in. They can do that for $5.50 and still enjoy the roof deck and the gigantic kitchen and the beautiful living room and the walkability to the Canton Square and all of those things on a budget. Love, love, love. That's the, there's been a lot of like truth and value bombs, but that's one of my favorites from today. So thank you. So talking more about money and specifically profit, right? This is like a whole bunch of work. So like, let's talk about the profit. How do you quantify?

your profit and your return on your investment. So I am looking at cash on cash return. So the numbers are, if it's a home that I put 5% down on, it's incredibly high because I only put down like roughly 20,000 to 30,000 with closing costs in these homes. So some of my returns are like 40 or 50% which sounds crazy. The homes I put 20% down on, they're closer to a 20% return. So when I'm running these numbers, I'm just looking at my mortgage payment, which is principal, interest, and homeowners insurance. And then I'm looking at the rent and the difference between that and calculating my initial returns. Some people like to factor in the equity they're getting, the tax benefit, they factor in maintenance. I kind of feel like as a rough initial analysis,

I calculate without those, and that's how I'm running those numbers. If you were factoring in all of those things, maintenance, vacancy, repairs, whatever, property management, it's like another 23% off of that and your returns are going to obviously be a lot lower. But how I'm looking at it is like if I took $80,000 and I gave it to the bank, right now, savings accounts are very high. They're around like 4 to 5%. Let's say I got a 5% return. I would have 4 grand at the end of the year on my 80,000. If I invest $80,000 into a rental and I'm making $7,000 a year after all the expenses, that's still an 8% return. By self-managing and not having a vacancy, most of my returns are closer to like 14%. I love that. And I mean, there's like my brain explodes when you say all that, right?

because like there's that's not even factoring in appreciation tax benefits so many other things and it's funny it's like risk is such a personal thing because for me it's much riskier for me to be picking out stocks than investing in real estate because I know real estate so although it can sound risky to own a house I think it's all you know comes down to the house you buy if you buy something that's a wreck and then you're going to have all these expensive cash sucking repairs that's like a different story. But if you buy something that's in pretty good shape and you understand your product, your real estate agent, you know the area, you already know how to talk to people, you know, how to run basic numbers, then the risk to me is way lower than other investment stuff that's

outside my, you know, what I've bothered to educate myself about in life. That is always how I felt and I think why I've bought rentals in neighborhoods where I am very familiar. Like I was my future tenants for a year and I know it really well. Yep. Yep. So let's talk about like future looking. Do you have an ultimate goal? Like are you trying to net a certain dollar amount per year? Are you just holding for that long term game? We already talked about the cash flow. But what about the big, big picture? Initially, my goal was just to cover all of my recurring minimum expenses with the income like my house, my car insurance so that I would never be stressed about commission like my coworkers. I have met that goal. So my current goal is to cover not only that, but also an incredible life where I can. cover traveling, saving, and investing with my rental income. I am definitely in it for the long run and I think I will get there. It's just getting to the next level and how I'm going to make it happen. Let me ask you this. I didn't ask you this in the prep. Curveball, are you still buying in this climate? Like, where are you at with growing your portfolio today? Give us the real deal.

I am still buying in this climate. I actually was up until midnight last night running numbers on three homes that caught my eye and texting my friend about them. So I would gladly buy a home today. If the numbers worked, I would close on it tomorrow happily. Do you feel like the numbers are workable with rates? Like, what are you seeing when you crunch numbers? They're definitely tighter and there are less deals to be had. But it just makes me think, how can I be more creative? How can I generate more revenue? What would add value to a tenant? And I'm still trying to figure out like what those exact answers are. I will say that 10 years ago when I started buying, I kept looking at pricing in like 2009 after the crash and thinking, if only I had been born,

you know, five years sooner where I could have gotten all these properties for so cheap. Now I look forward, you know, 10 years later. And I think, oh, thank goodness that I got those homes back in 2014 and 2013 before they appreciated. So I just think long term, yes, real estate has peaks and valleys, but it tends to go up long term and so does rent. So I would 100% still buy a home today. And I definitely think it's possible.

last year I had one of my tenants approached me and say, like, I'm inspired by what you're doing. I want some of the same for myself. And I helped him move into a home. He put down 10%, but he lives there for free. And it's in the same area that I own in. Oh, I just love it. Super inspirational. And here's the last thing on like on the money, you were kind enough to transparently share your net income figures with me in our prep. And although we aren't going to give the exact numbers, what I saw was over the last four years, you've grown from seven to 11 unit and you've more than doubled your net income. So just to give people, like a picture of what it looks like on the other end of scaling. Tell us about that. I mean, that's the beauty of rentals. The property values have gone up a little bit since I've purchased, which is great, but so has the monthly rent. Like, it has gone up and down certain years, but like 2016 was a very hot time right before COVID was actually a little bit slower. COVID hit, rent took off, inflation took off. The beauty of the whole thing is that my mortgages are all fixed.

I haven't done any adjustable mortgages or anything like that. So over time, that's going to continue to increase as inflation and rent go up. And I will still be getting tax benefits from all of that. So I just, I love the long-term beauty of it all. Yeah. And it's like, you know, the mortgage is fixed. Property taxes can go up. And, you know, that's good to, you know, work into your rent increases and your reserves.

But that's just a small percentage of the whole picture. So overall, my income has definitely increased. And I think part of that is why I had the confidence to leave the builder and the certainty that I could succeed there was seeing my income grow so significantly over the last few years. Yeah, it gave you freedom and choice. Yeah, I love it. Okay, so we're going to wrap up here. I could just keep going for a long time. But I always like to leave our listeners with some really actionable information to get started.

Like, okay, you just heard a million things. Like, how can we boil this down to something that you can go and run with? So what is the best way to get started on buying your first property or adding one more to your portfolio? Like what is the first move to get that ball rolling? Think about what type of investor you want to be, like what type of properties you want to have. There is plenty of money to be made in so many different ways. Like we talked about the college rentals, single family homes in the suburbs, C class properties in somewhat unstable communities, et cetera.

Think about the pros and cons to each option, like what you like to spend your time doing, what your current job requires of you time-wise and money-wise, and just learn more by talking to someone who is in that space. Just remember, like, high-risk, high-reward, like that college rental will cash flow really well versus the single family. And then once you've decided what you want to buy, start looking at those homes and just analyzing numbers on 10 houses a day, five houses a weekend, whatever it is, just start familiarizing yourself. And that way, when you figure out, like if your goal is I want to put down 20% and I want to cash to look $400 a month, the second you find a house and you run those numbers and they work,

you'll have the confidence to jump in, put an offer in, and get your property. So you just have to be ready and confident enough to make the move. Much wise words. And I feel like there's such a life and business lesson inside of this because you've gotten really good at running numbers. And I'm sure when you ran those numbers excitedly last night, it was quick. But you did that by slowly and painfully figuring out, how to run your own numbers in the beginning, right? Like, did you have someone holding your hand or did you know, put down and do math? No, I actually got my right. I actually remember fighting with my parents when I was 23 because they were yelling at me that I was overextending myself and that I had no business

buying a second property when I hadn't even settled my first home yet. And I really was just kind of trial and airing it based on my own confidence of the rental market at the time and how many people I had competed with to rent my $800 room. It was just kind of like learning as I went. and Googling, like, I saw C-O-C-R-O-I on, like, an article, and I'm Googling, what does that stand for? It's cash-rash return on investment. So I just kind of was hungry and educated myself about all of it. The other part I wanted to add real quick to answer your question about what should someone do. I said, like, game plan what you want so that when it comes, you are ready to get it, is you also need to game plan how you can save the money to make that happen.

And if it turns out that you actually cannot or are not willing to, then you have to look at, can you partner with someone who has that money? And what are their skills can you bring to the table in place of that? You know, I don't want to be the dead horse with this. But now that I've been in the industry long enough, I have like a really huge network. By the way, my network was like the size of a key when I started. So it's like you just have to remember. Don't compare your, your chapter one or two to like my chapter, you know, I'm like in my 19th year, my chapter 19th. But people, there's so much money out there to borrow people to make this happen. Like just trust me when I say it, even if you feel like you don't know anyone or nowhere to start, it's out there. And if you don't know how to start tapping into that,

I would take a look at who you're hanging out with. And how can you get access to, like, other mentors or other agents or other groups of people that are going to be able to start to help you walk through that. Is there anything you want to say about that? Like, your circle that you hang with or listen to, like, how have you figured that out? I feel like through my job, I wound up hanging out with a lot of other really driven high income earners. And I think there's this saying, I'm sure you've heard it, that you are like the five people that you surround yourself with the most. And that couldn't be more true. So if you're not inspired or I don't want to say jealous of because that's not the right word, but like intrigued by what others around you are accomplishing and making happen, then you are

hanging out with the wrong people and those people are just going to hold you back. You're not going to get better by hanging out with people that are worse than you. I think that's the perfect note to end on. And I think it's, I'll just share something. Like, I have found like when I get a spark of jealousy, it's always a great flag that there's like something for me to look at inside. Like, is that because I want that for myself? And sometimes I don't. I'm just jealous. But I think a lot of the time it's like, oh, like there's some like thing inside of me like that there's a like there's like a potential inside of me where I'm like they have that and how do I want it? And what's funny is I I found most people when I genuinely reach out and say like, hey, can I, can I learn from you?

Like it comes back to what I was saying earlier. Like, just ask. Just ask. 100%. The answers always know if you don't ask. Yeah. So we're going to stop right there. That's just perfect real estate advice. This has been so incredible. If anyone wants to connect with you and get to know you better and just, again, like add you to their circle, even if it's just from following your really fun and informative Instagram stories, where can they contact you? My Instagram is Jill Woot, J-I-L-W-O-O-O-T. Perfect. I love an easy Instagram handle.

So thank you for that. And if you are thinking about, you know, securing your next rental purchase and you want to look in the Baltimore market, you should reach out to me or Jill. You know, if you're in your own, most of the listeners of this podcast are real estate agents, some are not. But I think like one just word of wisdom I would add is like I do not have a portfolio like Jill's. but what I can speak to is I have gradually and conservatively invested in what I'm comfortable with. And then I just edge my comfort zone a little bit more. So that would be my encouragement is like, how can you just take one step out of the comfort zone and implement something from today?

So thank you for investing your time and listening to us. And Jill, thank you for sharing so, so transparently and authentically. Thank you all.