1 rental property at a time vs 50 | Dion Mcneeley vs Christian Osgood

Hey, this is Christian, and welcome back to Cody and Christian Talk with Dion.

Howdy, thanks for having me here, and thanks for having me out here today because, uh, this is much better than being stuck in an office.

Yes, and fortunately you have the freedom to do this. You don't have to be in an office, we don't have to be in an office, and that is the first of two things we're going to be talking about today. Last time when we met on our channel, we talked a little bit about when it's time to quit your day job. We want to dive a little deeper into that and then talk about the importance of scaling because that is one of the very few places Our paths differ a little bit. I strongly encourage you to follow everything this guy does because he is winning on all metrics of the game. His strategy works. You can follow this to financial freedom. We do it a little differently, so we're gonna have a little bit of back and forth, but I'm gonna dive right in. Dion, what were your rules for leaving the 9-to-5?

First, do you want to? Like, if you hate your job, you need to get out of there. But some people can leave their job because they have enough passive income to I've been able to do that since 2018, but I still work because I love my job. For now. For today. I will be leaving my job somewhere between 3 years from now and tomorrow. Somewhere in that time frame. That's my plan. Having multiples of the passive income coming in that would take for you to live your life. So you don't retire as soon as you can just cover that living expenses that you have. And then I like to take this from Joe Kuhn, a YouTube channel you should check out. K-U-H-N, Joe Kuhn. He talks about retiring to something, not from something. A lot of us think, I would quit my job and just do a lot of nothing. Well, 4 to 6 months in, we'd probably go nuts. Yep. But if you have something to retire to, your side hustle, your rentals, helping other people reach financial freedom, something that can actually fill that time with something productive, I think that's a good time to think about when does it make time to quit your job.

Absolutely. And the goal is to have financial freedom and the choice to do what you want with who you want whenever you want. And Dion has that. That's something Cody and I now are just venturing into, getting property management stabilized. That is ultimately the goal. You don't have to leave your job, but the choice to be where you want and do what you want is everything. Which brings us to velocity. One thing that Dion said last time we got together was, hey, if, if you're over 40, you may not want to do Cody and Christian's strategy because It is intense. It's a lot of work, which it totally is. It's an active job. However, for me, in a year, I hit my financial goals. I went from 2 units to 95 units. My wife's last day— it's our anniversary today, by the way— and it's her last day of working ever. She's 27, and now she gets to decide what she wants to do, when she wants, with who she wants. We got her out of the school district, and so I'm a little biased. I love where we're at today. Dion, break it down a little bit. Why you— how you balance risk and why, as you get a little bit older, you've adjusted a risk profile.

Okay. Well, happy anniversary. That changes one of the insults I was going to throw. Oh, no, throw it.

It'll be good for this.

When we watch content like this, what we do sometimes want to see is content creators who can agree on something. So we have a clear message. But the really important thing with, with real estate investing is there's no one right way. There is a one right way for you, but it might be totally different for each of us and for you. So there's 3 things that we, in this conversation, are going to disagree on. First, because of intelligence and self-preservation, I'm not married. You believe in marriage. Good job. That's one. Second, scaling to a large number of units is great for a motivated hard charger who's trying to take over the world. My goal was to make work optional to where I could work if I wanted to but not work if I didn't. I didn't have to. That's that have-to part of work that I don't think any of us like. And for me, I'm at 16 rental units right now, and I'm transparent with my numbers. My cash flow this year for 2022, unless I add units to it, is going to be $168,000 if I don't get out of bed. That's enough for me to retire and to make work optional. With 16 units, it's possible for me to sell off my single-family house, pay off a couple of mortgages on a couple of duplexes, increase my cash flow, and decrease the number of units and tenants that I manage. So that, that velocity of scaling, I equated it to age, but I think it could be equated to what is your goal. Is your goal financial freedom or to grow the largest, most successful portfolio that you can? I have two friends, Matt the Lumberjack Landlord and Michael Zuber from One Rental at a Time, who both have over 100 units and are both killing it. I wouldn't want that. And that brings me to the third thing that I think we disagree on, is you said we're reaching, you know, you and Cody are coming closer to financial freedom because you've got property management in place. I don't actually ever plan on having property management. I might institute a version of Hem Lane's software where I have some aspects of property management added to it so I have a little more freedom. But here's a hidden cost of property management that a lot of people haven't thought of, and I'll think if I can get this out clearly because not so smart. I run a trucking school where we sell products, and if we were to, you know, we sell training But if we owned a company where we sold merchandise and we sold something for $100,000, so this is gonna be clear, clean numbers. If we sold something for $100,000 and somebody paid for it with a credit card, we're gonna pay a 3% fee. So for property management, sometimes they charge 6, 7, 8, 9, 10% of your gross rents. With the credit card fee, they're gonna take 3% of $100,000. We would pay $3,000. Doesn't sound so bad. We want a $100,000 sale. But companies run on margin. Mm-hmm. If we sell a product for $100,000, we're probably going to profit $20,000. That's a 20% margin. A lot of companies have a 4% margin. We have about a 20. So if we make a $100,000 sale and we have $20,000 in profit and we use a credit card, we're gonna take that 3% of $100,000, which is $3,000, off of our $20,000. Meaning we're losing 15% of our profit. That property manager that you're using, while yeah, they might only take 6 to 10% of your gross rents, off your profit, they're probably taking 15 to 25% of your profits.

I love this. I love this. This is, so one of our first experiences with property management is they stole 100% of the profits and they disappeared.

That's significant.

Which is a poor business model. So what Cody and I ended up doing, and this is something that I'm a huge advocate for, is vertical integration. We took property management into our own hands. We had an option of, do we, do we try to figure out what is the margin here, what's the cost of property management? We started a property management company and we based it on flat fees, so we're not taking a percentage of people's rents. The better we do, and this is just true for all property management, if you have someone who does a percentage, the higher the rents are typically, the better the tenant and the less work it is. For most PM companies, the less work they do, the more they start to get paid. You have a stable property. We don't do that. Everything's flat fee, and we run the company about this far above breakeven because we have 95 rentals, or in Cody's case, 105 rentals. They've increased the value of that portfolio hundreds of thousands of dollars this year from having a great team in place. The property management for us doesn't need to make money, but it does save us time, which goes back to the freedom. Of now we can do what we want when we want. Our property manager is fantastic, and she's paid really well to be fantastic. She's now moving towards getting to do what she wants with who she wants whenever she wants. And that is, that is how we look at PM, is you can trade your money for time, which is a great, a great trade. Many times I'd trade the $3,000 personally for a property manager to buy that time back. However, if you want to just start your own and you have enough scale You can do that, but you can't do it without scale, which is why we're such an advocate for let's build something big enough so $3,000 is a rounding error.

Right, so I'll be the first to admit, with your model, you're going to make more money, you're going to be more successful, and try to file this away in the back of the lizard brain. Success is the continuous realization of a dream. Your dream sounds like it is to grow a massive portfolio. My dream was to not work. Yep. And I think I'm killing it at that.

You are.

Because I still have a job, but I'm not working. We're out here in the middle of winter in June in Washington State, which is a great place to come. I hope summer falls on a weekend this year.

That would be great.

So the last thing I think that we can disagree on that I think that we kind of have a different opinion on is I really like the flat fee. That's something I heard Dana, the CEO of Hemlane, talk about where percentage ratios do is exactly what you talked about. The less a tenant needs taken care of, the more likely they are to pay a higher amount, which means a higher percentage going to property management. So flat fee is something that I will probably one day, but not today, add to my portfolio. I think that, like I said, I think the last thing that we disagree on is, and I lost it.

That's okay. We don't edit. This is just gonna stay out.

That's totally fine.

We will end this.

No, leave this in because it's not so much that we disagree on things. I think real estate is an asset that can make work optional, can build generational wealth, and you can disagree on how things are done because you don't have to do exactly what Christian is doing. You don't have to do exactly what I'm doing. What is going to work in your market and what is going to make you reach your goals, which are probably very different than both of ours. If you were starting out today in 2022, what is the one piece of advice— and this is where I want to see if we come up with even something similar— that you would give to a new investor starting today?

Well, we're probably going to disagree. My, my biggest thing is I'm watching just basic macroeconomics, and we're not going to get into specifics, but the gap between rich and poor is going to be widening like this as they're printing more money. Especially like you watch COVID, they just dump money out of helicopters, and it gets spent, and it all goes to the landlords. It goes to this side. In terms of scale, my advice is if you are on this side, get a boat, swim, scramble as fast as you can. You need to get to the other side because you can have freedom, you can have all the things, but ultimately, if you're not completely financially free when you want to be, you're going to lose time. And I don't think you can afford to lose time. So my biggest piece of advice that I've had— I started the 9 to 5 for 7 years to buy 4 units, and that was awesome. That paid for my mortgage. My real estate was paying for my real estate. When I took 1 year to scramble, I hit all my goals, and now I have time, and now I can do more of the things I want. My advice is take that 1 year to sacrifice. Just go no limits. I'm going to work every hour. I'll sacrifice everything for 1 year to have the next 20 years completely free.

Okay.

That may not be the exact same advice you have.

No, it's very similar with a couple of tweaks.

Yeah.

So the wealth gap increasing between the rich and the not rich is by design and by choice. So have you heard of a K-shaped recovery?

Yes.

Okay, so I think we're in the middle of a K-shaped choice. Okay, so we all start from the same point of, of, of looking at what's going to happen in the next couple of years. Yeah, my biggest fear for that new investor is if you think your job is the safe bet, the person who thinks I need to work hard at my W-2 to keep— we do need a W-2 because it makes it easier to get loans if you're going to do conventional regular loans. But if you're not doing what Christian said and trying to acquire cash flowing assets, then as this K progresses, you're going to get, it's going to get worse and worse and worse because if you have to sell your life one hour at a time at your W-2, what are you going to do one day when somebody stops buying? But if you have assets that are diversified, so a difference with scale again is I like the small multifamily, 2 units, 4 units, 3 units, that are not close to each other so that during a recession, or I don't think we'll see one, but a depression, and there's mass layoffs, your entire portfolio isn't impacted. But when you have a 36-unit apartment complex that draws tenants from one area, if a business closes down or moves away, you could be impacted. But if you have duplexes and fourplexes that are spread out 10, 15 miles apart that are pulling from things like a base, a port, a college, a hospital, for enough things to be impacted to impact your rent flows enough to hurt you, I think rent's gonna be the last thing we're worrying about if that many things go wrong. So that was my advice as far as scaling, not so fast with numbers, because here's the thing, this is why we don't edit, because it finally came back.

Yes.

You like the scale, you like to get to 95 units. What does your turnover rate look like?

Turnover rate in the 95 units, and this is very intentional, we picked up a lot of units where the design was let's get people out and stabilize the property. So by design, we probably will have 5 to 10 people turning over at any given time.

Okay, so at any point in time you have around a 5% turnover rate? Yeah. 95 units, that's 5 a year?

Yeah, give or take. That's— they cycle in and out. That's at any given time, that's the vacancy. So we'll have more people turning over, but new people will be in before the next person moves out. So it's about 5% vacancy. The beauty of it is you have enough units, you have enough individual residencies where when someone moves out, it doesn't hurt If you have a 10-person portfolio and 2 people happen to move out, you have 20% vacancy. In a down market, that can take a while to recover. I think they're apples to apples about the same. It hurts more with less units, but you deal with it less often.

Okay, so you have apples to apples. I'm gonna bring in some tangerines.

Love it.

I've been investing for 11 years. I have 16 rental units. Up until this month, in total, we take out my first tenant because that was a nightmare, and we all make our mistakes with the first one. But if we remove the very first tenant, In 10 years, I've had 2, a total of 2 tenant turnovers ever.

That is amazing.

And never had a vacancy. I had 4 days between one tenant and the next, and the other one ended month and started month. So getting everything done in a day is almost impossible. Yeah. I'm about to experience 2 tenant turnovers, so now in 11 years I will have 4 total tenant turnovers, which means finding tenants, screening tenants, placing tenants, doing any kind of rehab, upgrades, flooring, paint, or anything that you have to do, which you are hiring property management to take over. That to me is the benefit of single-family and small multifamily. In an apartment, in 36 units, 20 units, those are units. My duplexes is a house where it touches another house. They have their own fenced-off yard, they have their own garage. My triplex is a house and a duplex. Like, I don't have the tenant turnover problems that I would have if I tried to scale more, which my last thing that I'll wrap up with. And this is what I want you to think about if you're trying to decide between two strategies that work. Yes, that's the thing, it's hard to make a decision when both outcomes are positive. But if you're trying to choose between these two strategies, are you trying to invest to make work optional and quit your job, or are you trying to invest and create a job?

And that's exactly why our channel is called Cody and Christian Multi-Family Strategy. It's not about copying us, it's not about copying Dion, it's not about copying anyone. You need more tools in the tool belt. You need to increase Increase your arsenal so that you can do deals and find opportunities that no one else can do because they don't have your base of knowledge. This is why we have Dion here. Craft your own to your goal. You're gonna start this by choosing what you wanna do and why you wanna do it. Follow for more. We will have Dion on again. We'll be back on Dion. We love all the content that he has. See you guys on Monday.

Thank you. I almost jumped off the edge. Did you hear those were kids going by? Kids are demons.