Financial freedom through dedication and lots of mistakes - with Dion Mcneely

Hey YouTube, it's Christian Osgood and I'm here today with Dion. If you haven't followed him yet, you need to. I'm going to link his channel right below. But Dion, you were just featured on Business Insider. I read that article, it's awesome. 16 units. How did you get to where you are today?

A lot of mistakes. It took a lot of mistakes to get here. The hardest thing I think when it comes to starting investing is we don't realize how bad those first few years are going to be. It takes a lot of patience. And we talk to a lot of investors or people who've reached financial freedom, and we say, if you lost everything and you had to start over, what would you do? And the big difference is that investor knows that it will work. The new investor who's just starting, those first 5 years, you don't have that confidence. So it's hard to have the patience and the discipline to actually make a plan and then stick to it.

Yeah. Now, when you started, what was your initial plan? What was the goal that you were headed towards?

Well, I was tired of my sources of income being taken away due to things outside of my control. After Desert Storm, the Marine Corps downsized. In 2008, I was a police officer, and when there's a recession, cities aren't making a lot of money, so they kind of say, you know, we don't need cops anymore. So I got laid off, and I was tired of every time I thought I had it made, you know, Marine Corps gets a pension after 20 years, law enforcement has a pension after 20 years. I looked around and I thought, there has to be a better way to do this. And I have a brother who retired with 10 paid-off rentals. So starting at the age of 50, he's been able to do whatever he wants. And I thought, I'm going to try that. And I epically failed for at least the first year.

What did that— what did failing in that look like?

Failing looked like not educating myself. I thought, I'm going to try to invest in real estate and replace my income and make work optional. And to get into the Marine Corps, it was a 13-week boot camp, MOS training. To get into law enforcement, it was a 6-month academy. Training is ongoing. And I thought, well, I'm just going to start investing with no training or education whatsoever. Ah, no books, no podcasts. So in the first year, I made all the mistakes. I thought I'll rent to a friend because, you know, you can't trust a stranger. No lease, used a handshake, rented to a single parent. So when rent started to be late, I was a single parent, I understood. Late became never. And when I went to the house to check it out, to make a face-to-face conversation to find out what was happening, I found out he had moved out and rented the house to someone else and was keeping the money. So I was so bad at it that I tried to quit. I tried to give the house away, but luckily because of the housing crash, I was underwater and I couldn't even give the house away. So I was stuck with it, and then I realized I hadn't educated myself. I looked for communities like this, like BiggerPockets, started reading books like Rich Dad Poor Dad or One Rental at a Time, and with just a little bit of education, it took about 8 years to go from $89,000 in bad debt in my name that I didn't know existed until the divorce, as a single parent with 3 kids, starting out working at this truck driving school that we're recording at, making $17 an hour. 8 years later, completely bad debt-free, net worth is approaching the $3 million mark, cash flow is about $136,000 a year now, 16 rental units that I self-manage, work became completely optional in 2018, and my goal now is to take the strategies and tactics that I used to do that and share it with people that watch your channel.

That's fantastic. That's the one piece that Cody and I like to share all the time is you can't operate in theory. Like, at some point you have to try something you've never done before. So you have to research, and there's going to be some point where you're operating in theory, but you need to move carefully, you need mentors, you need people around you to get there. You talk a lot about the education piece, and if you haven't followed his channel yet, he has the best education piece out there. Follow exactly everything that he says to do, do that. But when you are moving forward, how did you network? Did you have a mentor or guides going through this? How did you move from, I've never done this before, I failed at doing this, to I'm now successfully free from the rat race, or at least you don't have to work if you don't want to.

The first thing to realize is you are going to do this. And most of us, when we first start out, we reach out to the wrong mentors. We think we know a real estate agent, so they work in the industry. Well, the real estate agent's job is to close deals. And we know a lender, or we get to talking to a lender. Lender's job is to sell loan products. I even know people who are investors, like my brother who has 10 paid-off rentals, who thinks I was stupid for taking out mortgages on my properties. And my first real estate agent had over 30 rental units. He's financially free, has 19 agents working at his office, and the advice he gave me would have bankrupted me because he invested in a different time with a different strategy. He didn't have my resources, and had I listened to him on the first couple of deals that he had me making offers on, they would have lost money every month and I would have went bankrupt. Pick a strategy, then find people who have done that strategy and learn from them. And it's probably not going to be your agent, lender, or people that you know in investing. It's going to be somebody that you find in a format like this or in the forums on BiggerPockets.

That's phenomenal advice. Now, you said your brother started no debt, or at least paid off a portfolio of 10 units. That's not what you did.

No.

What does your strategy look like?

So he had a paid-off house and he took out a home equity line of credit. And he bought a rental, would pay it off, buy a rental, pay it off, rinse and repeat until he was done. I had a bad debt-to-income ratio. I had a lot of bad debt. I wasn't making a lot of money. So I lived in a house. I have one single-family house that I purchased before I was an investor. I moved from that house into an apartment because the lender told me that one of the problems with my debt-to-income ratio was I didn't have rental income. If I had rental income on 2 years of tax returns, then I can buy properties like a duplex, triplex, or fourplex, and the lenders would consider 75% of those rents in my debt-to-income ratio. So I moved from a house with my kids into an apartment. I rented for 2 years, so I'm renting to get into real estate so I could rent out my house and show 2 years of rental income on my tax records. And some people say, well, I don't want to move into an apartment because I have kids. How many millions of families live in apartments? And when I actually talked to my youngest, she was 8 at the time, she was super excited. She thought, I get to be the new girl at whatever school we move to, and apartment complexes have a pool, a weight room, and a whole bunch of other kids to play with. So sometimes instead of thinking your family is the barrier, they're the motivation to start investing.

That is incredible. And I know a lot of people want to get out of renting and want to own, and What you really have to do is just look at the numbers. Like, people buy a house because they feel like they're going to move financially forward, and that's not always the case. The fact that you're able to do that, I mean, that's a humble step to say, I own a house, I'm going to move back and become a renter so that I can move forward and become an owner. That takes a lot of discipline. That's amazing.

And that was what was hard, just in those first couple of years when you don't know that it's going to work yet, having that patience of thinking, okay, I'm paying rent for 2 years to be able to buy a duplex. So I was living in a house My first rental property that I purchased was a duplex where I moved into one side, and we call it house hacking, you know, reducing or eliminating your largest expense. Where a lot of people talk about the latte factor, where if you cut out $5 a day, you could save a couple hundred bucks a month. I moved from that apartment into the duplex, and I started immediately saving $1,200 a month on my housing cost.

That's phenomenal.

Which, when you were making $17 an hour, is a lot of money to start saving.

Now, if you follow our channel at at all, you know, Cody's never had a job ever. I mean, he technically worked as a gym coach for like a month, but Cody's never had a job. I left the rat race 'cause I could not work for other people. We're here in your office today. Like, you're at work, you don't have to be here. This is a weekend. This is, right now we're recording on Saturday afternoon. We're here at your job. Why are we here?

So we are actually, just so everybody knows, it's not a green screen. This is actually my office. There is a whiteboard behind us. So when we do Whiteboard Wednesdays, which I'm stealing from these guys, I'm not sure what day I'll do those on. It'll actually be here in my office where I still work. So I'm financially free, have been since 2018. I am not an entrepreneur. I'm an investor. I've always had a job. I started working when I was 8 in the onion fields next to my mom. I went through the Marine Corps. I've been a truck driver. I've worked in law enforcement. I've worked at a CDL school teaching people how to drive trucks. I'm good at working a W-2 job. I used investing in real estate to make that completely optional to where if my source of income is ever taken away or I ever decide to stop working, it's an option. But there is a time to quit your job. If you hate your job, the second you are financially independent, it's time to quit. Maybe even before if you can find another job. But I worked my way into a job that I really like. I run a truck driving school. I actually get to help people find good local driving jobs. We have simulators, which hopefully we're going to roll some B-roll at some point.

We absolutely will. They're awesome. They're huge.

And we've got people training in trucks. I get to drive around in a semi like it's a go-kart. I founded a nonprofit at my job where I get to help people find non-driving jobs with local trucking companies. That's how our trucking school maintains relationships with those local companies so our graduates don't have to go over the road. So when I was a police officer, I basically dealt with everybody on the worst day of their life. Doesn't matter if they were the suspect or the victim, it was the worst day of their life. That's why they were talking to a cop. Working at the truck driving school, I only interact with people who are trying to actively improve their life. So to me, it's just an environment I don't see me leaving. Some people talk about financial independence, retire early. I don't know that I'll ever retire late.

That is really awesome. And that's, when you're setting your goal, you're not gonna reach your goals unless you know exactly where you wanna be. When you're starting, you need to have a commitment to where you want to be and what you want your life to look like. If that's having your W-2 job, how much better is that gonna be if you don't have to work for money? When you get to go to work, that's amazing. You don't have to do this to quit your job. I'm not sitting on a beach drinking Mai Tais. You're about to be on a beach, but you're not usually on a beach.

So the one great thing about financially being financially free and knowing that work is optional is your employer also knows that work is optional. So a couple of days ago when I called the people who own the company and I said, hey, I'm going to go to Florida for a month or two and scuba until I'm bored and then I'll come back to work, they know that the best thing to say was, cool, stop by and say hi when you're close.

Having that power and freedom over your life is what both of us want for you.

That's—

his channel is about creating your own goal. He has a strategy to get financial freedom. Cody and I are about scale big, and we use debt differently, but the end goal is the exact same. No matter how you're scaling, how you're doing it, you're going to pick a strategy and a path that get you there. And in real estate, there's a lot of paths. Do your research. BiggerPockets is an excellent resource. Follow him, follow us, follow whoever else, but pick a lane, stick to that lane, and achieve your goals. And Dion, someone who's done that full cycle, you pretty much get to do what you want now, which is just phenomenal. We're so happy for you.

And what I want is to show people that they can do the same thing. And with real estate or with investing, there is no one right way, but there is a one right way for you. You just need to find that. It's completely worth it as long as you can understand that those first 4 to 6 years are going to suck. For 4 to 6 years, live the life that no one else wants to so that you can live the life no one else can.

And we are feeling that right now. I can tell you, a year into this, I'm at 71 units. Cody's, I believe, at 87. Scaling that quickly, starting a couple companies, There is a whole lot of suck in your first year. This is hard. We don't get breaks. We don't get to celebrate often. We're pushing really hard. We know where this leads and we know where we want to be. And that goal is what keeps us motivated. We're going to get there and we're going to have that freedom that Dion has already, already captured for himself, which is just amazing.

What I really like about watching this channel is you can scale quickly. You can be super motivated and like Matt the Lumberjack landlord or Michael Zuber from One Rental at a Time. You can have portfolios in the hundreds of units. There are some people out there who are lazy like me, and the goal is to get just enough units to where we can live however we want. And for me, financial independence actually happened with 7 units. That's when I started making more from rentals than I was making as a police officer. Now at 16 units, I make more money from rentals than I make running a truck driving school. It doesn't take a lot of units, but for somebody, you know, you're what, half my age?

Just turned 30.

There you go. So for somebody with decades ahead of them where you can grow and scale as much as you want, strategies like this I think are more effective. If you're looking to just make work optional, I think the average person can do it in 10 years or less, even if you're not starting from the best position, and it doesn't take a lot of units.

Absolutely. Last question I have for you. Your brother used no debt, you used some debt. What is your thought on using leverage? Uh, you are a couple decades ahead of me. What does that look like as you get further in your investing career? You've already reached your goal. Does that change debt for you?

So a lot of people think that your debt structure changes and your investing changes. Like if you talk to anybody in HR at your company, if you have a 401(k) program, they're going to say something silly. Like, if you're younger, you want to be more aggressive and take higher risks. And then as you get closer to retirement, you want to take less risks with your money. I personally hate retirement accounts. That's why I think any advice on retirement accounts is just silly. And coming from people who got out of the rat race and Cody never had a job, really, I can understand retirement accounts aren't even an option. My debt structure doesn't change. I don't plan on ever wanting paid-off properties. I would like to get 1,000-year mortgages if I could. My goal is the cash flow. Cash flow happens from price, rate, and rent, not paid-off property. So a lot of people think, if I buy a property when I'm 30 and I pay my mortgage till I'm 60, I'll have a paid-off property when I retire. Or you can invest and have a few rental properties that are never paid off, and the cash flow is multiples of what the benefit of having a paid-off mortgage would be, especially when we have mortgages with rates under 6%. The inflation is usually 3%. Last couple of years it's been over 7%. So you can borrow money now at a lower rate than inflation. Why would you ever pay that off? I want to be around 70% levered when I'm 20, 40, or 50, and I didn't start investing until I was 40. So I like 70% leverage so I can handle a price correction. I can handle rents coming down. Rents can drop 50% and I still wouldn't touch any of my loan money.

That's phenomenal.

I also don't want to be all paid off because one of the best benefits to real estate is that you gain appreciation on the value of the property, not the amount of money you have into it. So if you put $100,000 into a $400,000 duplex and it goes up 10%, You don't gain $10,000 because that's 10% of your down payment. You gain $40,000. So I want to be at least 70% leveraged. So as we have appreciation happening, my net worth changed in 2020 by over $600,000 just because I owned properties. I didn't make that much out of rents and I didn't make that much of my job, but just by owning properties that are levered, I gained that much appreciation. We never count on it. We don't invest for it, but it's a byproduct that actually happens.

And it's absolutely phenomenal, which is why Cody and I always ask the question, how do I own it, how do I keep it? And if I can answer those two questions, it's a property we want to buy. And you keep it with cash flow. And then we get creative again for how do we buy the next thing, and that's how you use debt. You need to have enough buffer. So economies will collapse, rents will pull back at some point. The worst I think we've ever seen is a little over 18% in this country. Where rents just took a dip in the 1920s.

I was gonna say, because in my life I've never seen a rent drop. Even in 2009 and '10 here with the housing crash, rents went up because the housing crash, a big part of it was a lot of people got foreclosed on, which turned them into renters, increasing demand on rentals. So yes, be ready for rents to draw back, but I'm half a century old and I have never seen it.

And if you can get yourself in a position like Dion or us, we can have rents drop about 40% before we get in trouble. You can afford it to go 50%. It's never happened before. You are very unlikely to lose your property unless something that has never happened before in the history of this country does happen. So that's all. We share the same opinions on that. Use it, but use it wisely. Cash flow is king. Appreciation is a wonderful benefit that will multiply your money. You need to make sure you're getting paid while you wait. Time's an important factor, but you don't have appreciation today. You don't bank on it today. You don't predict where it's going to be 5 years ago. You just buy. So, you know, in 5 years, no matter what happens, you still have the property and you're still getting paid to hold that property. Dion, this was fantastic. Thank you for letting us use your amazing background on your channel. You are iconic and we appreciate this a lot.

I appreciate it, Christian. If anybody has any questions and wants to reach out, my channel is Dion Talk Financial Freedom and I do about 3-hour live streams every Tuesday where The livestream basically goes as long as the questions keep coming in.

And people ask awesome questions, and there's some, some questions that are less awesome than others, but for the most part, people ask great questions. It's a great place for you to get your questions answered by someone who's actually done it full cycle. Link to his channel somewhere around here. I'm getting better at editing, so I'll throw that in there. Like, follow, subscribe. We'll see you guys soon.