Multifamily Investing Meetup: Discussing Strategies for Investing in 2023

And for those who don't know these guys, I'm excited for you to intro to everybody. We would not have the resort without Michael Zuber, who then passed it to Dion. This would not have happened originally. We were told it was a zero-down seller-financed resort that cash flowed $20,000 a month. Dion might have left off the other zeros in the one, but here we are, we still made it happen.

It went from zero down to Million down, right?

Yeah, it was close.

There's a bunch more zeros, but they're all zeros, right? Except for the one.

Yeah. So, Millennial Mike, can you tell us—

just call me Mike.

No, it's Millennial, last name Mike.

YouTube land. What type of work do you do?

Oh man, I usually don't share that with people.

Not where you are, but what type of work do you do?

I'm not trying to get shot here, peacefully protested to the I'm a cop. That guy right there, he's ready.

Yeah.

Oh, he's from Oregon too.

Children away from the bar. If you're under 18, I need another yard of space.

I'm a police officer. And as Cody so eloquently pointed out when we all went out to dinner in California, I'm the only one of us that's a big enough loser to still have a W-2 job.

Boo.

He put that in my face when we all went out that one night.

On accident. You're still working?

Yes, yes I am. Oh, wow.

And at the table, I think you're the only person who's actually never had a job.

I worked at Safeway for 27 minutes.

Oh, there you go. Okay, so that counts.

Yeah.

So you've worked in law enforcement.

Yes.

Worked at Safeway for 27 minutes. Have you ever made 6 figures in a W-2 job?

Uh, I did. Yeah, for a little bit at CoStar.

All right.

Um, 7 figures?

No, not at CoStar.

If he did, he better start—

I probably would have not left the 9-to-5 as fast if I had that much income.

And I've been a Marine, a cop, and a truck driver, and most of those jobs I made between $40,000 to $60,000 a year. Last couple of years I made some pretty decent money, but most of my career that's what I was making. So you can make decent money, you can not have a job, and you can make average money and reach financial freedom. It's kind of the whole point of doing this. And why we have different people up here is every person here and every person watching has a different goal. None of us know what it is. None of us have your resources, none of us have your timeline, but each one of us is doing it differently, and something that we're doing is something you can take away. You might not like my entire strategy, you might not like Mike's, you might not like theirs, you might not like the whole thing, but something you'll take away. One of the things I'm gonna talk about today is I have a strategy that gets my tenants to ask me to raise the rent. It's a lot easier to find a cash-flowing rental on the MLS for tenants come to you and say, will you please raise the rent $300, $500, $600 a month? And when you agree, they say thank you. Mike, not— you don't live in Seattle, you're near Seattle, right? You're around there, right? Is investing out of state. So living in a high cost of living area, you are also house hacking. So tell us a little bit about your portfolio.

Yeah, so I, uh, decided to buy my first duplex to house hack. I assume most you guys probably know what that is. You move into one side and then you rent out the other side, so that way your mortgage payment's a lot cheaper. It's what Dion does, it's what I do, it's what the Lumberjack Landlord does. If any of you guys watch these guys on YouTube, you should if you're not. I knew that my biggest expense each month was the rent that I paid. I was paying a lot to live in Seattle initially. So I wiped out that $2,000 a month expense by buying a duplex and renting out one side and then renting out my rooms to roommates, and so I was able to live for free. But then from there, I said to myself, hmm, I don't know if I could save 20% down for another $500,000, $600,000, $700,000 property, which is what it costs. I don't know how many of you guys are from like King County, Pierce County area. How many people here are local? But it's really expensive. California, a lot of these cities are so expensive. And I was like, 20%, that's like $100,000 to $200,000 plus closing costs. So that's when I started to look at markets in the Midwest. I'm from the Midwest originally. And just take a zero off the end of all the numbers. Instead of a $500,000 house, I have bought 4 or 5 properties for under $50,000. I don't think I've ever spent more than $90,000 on anything I own. They all rent out for $1,000 to $1,200 a month. I have mortgage payments that are less than your car payment. Most of my mortgage payments are $350, $400. They rent for $1,200. You guys can do the math.

Maybe not that guy.

Just kidding, buddy, you look great. But yeah, you can figure out how it starts to add up and you can get some pretty good cash flow. Now, not the huge numbers you have like Dion when he rents his units out for $2,000 and stuff like that, but it's a lower barrier to entry. But the big problem comes, well, I'm not from the Midwest, I don't know anybody in the Midwest, I don't know a property manager, how do I not buy a lemon? How do I not be taken advantage of? So my whole story has been how to learn to invest in the Midwest and do it successfully. So that's what I talk about on my channel and that's what I do right now.

That's what I really like about your story is picking a market at a distance. If you're living in a place like California, New York, Seattle where it's really expensive and you call an agent in Indiana and you say, "I have Seattle money and I would like to buy properties in Gary," they're going to have the best deal you've ever heard of that every single local investor passed on for a good reason. So when we get to your story of how you got to Gary, Indiana, that's key. It's not just picking a market but having that, the boots on the ground, the people you trust there. Yep. For me, the goal is very different. We have a spectrum up here of what the Marines would call motivated hard chargers, people who are trying to build a massive portfolio that's going to just grow for generations, right? The portfolio itself is going to grow the portfolio. And we have investing at a distance. You're motivated to do the same thing. I think you talked about getting to numbers like Cody and Christian and Zuber and Lumberjack. And I got to 16 and I'm not even sure I want 16. The cash flow from 16 is 4 times what I need to live. And if I sold a couple and then paid off the debt, I'd actually have more money with less things to deal with. So there's the extremely lazy way. All of my deals are from the MLS. All of my deals are traditional lending, no seller financing, no creative, no nothing like that. All the way to You guys have millions of dollars worth of property and just got your first bank loan. Like, that's a massively impressive thing that my brain could barely comprehend, and you guys are nailing it. So the idea is everyone here has a goal and something each one of us is doing, like how to pick a market at a distance, how to talk to owners and not come off sales pitchy so they just shut the doors as soon as they talk to you, and then How to do it extremely lazy. I was a single parent with 3 kids. I got laid off from a police department in 2008, because, you know, during a recession there's no more crime. We don't need cops anymore. And I found out about $89,000 in bad debt in my name that I didn't know existed until the divorce. So starting from that position in 2008, it took 12 years to get the— and my portfolio is small enough to where I still share the numbers. This year I will profit about $203,000. I self-manage, and on average it took about 2 hours a month to manage my rental portfolios. With the size that you guys are going, you guys are building a property management company while you're doing it, right? So putting systems in place. One of the things to really take away from the— whatever the goal is, whether you want a whole bunch of units or just enough cash flow to make life easy to where you don't have to work, which was my goal, I'm super lazy, I didn't want to have to work. I kept trying things like the Marine Corps, law enforcement, trying for a pension. The idea is get to the age where the pension kicks in and you don't have to work. But those kept getting taken away. The Marine Corps downsized after Desert Storm, law enforcement laid off. The idea for me was to create my own pension, which doesn't take a huge portfolio. So that's kind of who we are. Mike investing at a distance but house hacking. I still house hack. I've only house hacked twice. So it's not like something you have to move every year to keep repeating. You can do it once or twice and reduce or eliminate your largest expense so that it's a lot easier to save money for that next rental. And what we'd like to do now is kind of open it up to questions. And then, is there anybody here who hasn't heard of the binder method of getting the tenants to ask you to raise the rent?

You should share that.

Let's— yeah, let's just open right into the binder, and then I'm gonna have a couple questions for you guys about your strategy, why you did what you did.

And for the end, let's go with—

you just brought up the binder, let's just jump the binder right now. Okay, fine. Okay, there we go.

Okay, fine.

Yeah, that's right. Sorry, YouTube Live, you're gonna have to wait for another 10 minutes. Stay tuned.

But it's, it's really fun when you combine strategies though, because you can invest out of state. We've seen that You've done that excellently. Caleb and Chuck are investing states away from where they live. They're doing the seller finance route, so they're doing a mix of our strategies. If you then go do the binder strategy, you go build 100 rentals and they all ask to raise the rent $300. I'm not super great at math, but that's an extra $30,000 a month. That works, right?

And then what happens when you invest in multifamily, when your NOI increases by a $300 a month increase from your tenant's request?

Well, yeah, I mean, you make $60,000 a door.

Right, that doesn't suck.

No, $6 million value-add works.

Okay, so since actually so many of you raised your hands with not knowing what the finder is, I'll do like a quick 5-minute version.

There we go.

So I buy properties on the MLS where tenants are usually paying below market rents. I mean, the reason it's for sale is the owners have made the number one mistake that every owner that used to own rentals made. I've spent the last 2 years asking a bunch of previous owners that I found them in the Choose FI Facebook groups, because they're all stocks now because real estate sucked for them. They all made the same mistake. Every single one of them said, "I didn't raise the rent." The asset wasn't producing the cash flow that they can get in another asset class because they didn't raise the rents. And if you buy a property and you go to the tenants, or if you own a property and you go to the tenants and you just say, "I'm raising your rent $100," you're a jerk. Your tenants will call you names, you'll hit the Facebook wall, Facebook, you know, anti-landlord groups and they'll do all, say all kinds of things. But if you use this strategy, I think the smallest rent increase I've ever been asked for is $200. On average is $300 to $400. I think the largest was like $600. So I'll buy a property from the MLS, rents are below average. And the idea is I wouldn't want to use this strategy right away because your tenants might not be tenants you want to keep, right? What if they don't pay? You didn't get to screen them. You don't know their credit score, their work history, their— if they pay on time, call you for trivial things, or you get noise complaints. So I wait a couple of months. And then I actually take— the reason we call it a binder is I actually take a physical binder, and you can do this through email. I did it with the Thurston County Housing Authority through emails. They actually told me that the highest rent they would pay for my property was $1,800. I used the binder strategy and got $2,200. So even the housing authority made a $400 variance for me. So the idea is your tenants have no idea what rents are. They haven't looked at buying properties, they haven't looked at moving, they've usually been in there for years, that's why their rents are so low. So you're going to educate them, you're gonna have a conversation, and you're not going to threaten them, you're literally just going to show them, here's what's happening. I purchased the property, the front of this is, it's very simple, there's only 3 things. 3 things. In this, the front is a picture of the property. Something that they're gonna be able to find on the internet themselves from Redfin or Zillow, and it'll have the price that you paid, the current estimate for it, so you're showing transparency. You're showing, I'm going to show you things that you can look up. You can tell them, right? This is the website you would go to. So the property that the tenant's in, the previous owner probably bought for a fraction 10 or 20 years ago, and their rents made sense. I'm going to say, this is what the current estimate is, so my property taxes and my property insurance insurance is gonna be based on this number, so your rents don't make sense to me like it did the previous owner. And the tenants don't care about your expenses, but this is just to show that you are being transparent. The first page is gonna be a map of the area from Apartments.com or Zillow that shows the rentals with the little pinpoints on the map so that your tenants can see that you're getting this information from the same area. Each page after that is an actual copy of of a rental in that area with the same number of bedrooms, bathrooms, garage, stuff like that, with what they are renting for. And then I highlight that it's the same number of bedrooms and bathrooms because this property, the tenants were paying $1,150 and $1,175 on a duplex. There's a house that's a triplex, so the house was a different number, but the rents I found— and this was a couple years ago— were, uh, $1,575, $1,600, a pretty big difference. Show the tenants the binder showing them what this means. Like I said, this can be done through emails or even through texts, and just say, here's what you're paying, you know what your rent is. If you moved out, my rent would go to $1,575, $1,600, there's even one in here for $2,200, um, and but you tell them, I don't want to kick you out of your house, but I don't want to lose money. So the magic question is you actually give the binder to the tenant and ask, what do you think is fair? So if you're the tenant, you're paying $1,150 and $1,175 and somebody hands you this binder with stuff that you can verify right now online while you're having a conversation and they know that if you move out they're gonna get $1,600 and they ask you what is fair, both of these tenants went to $1,460. So over a $300 increase both sides and still one of them watches my content, they're happy because they don't have to move and get a $1,600 a month place. And this was a few years ago. This place is at $2,000 and $1,800 now, both sides. But the first time using the binder was a $300 increase. Happy tenants don't trash your property. Happy tenants don't move. You can use this on your property management. You can look at your rents, find area average rents in the area, and send this to your property manager and say, Hey, have you had a conversation with the tenants to find out why we're so far off of what is normal in the area? Doesn't have to be a face-to-face conversation. It just works best for me doing it that way. And so it's really, really kindergarten simple. Educate the tenants on what rents are. I don't want to have to have the tenants move for a couple reasons. One, I don't wanna be a jerk and force them to move. Two, I'm super lazy. Started the conversation with that, right? I've never done a rehab. The most I've done is I've put in flooring and paint. So I've never done kitchen, I've never redone plumbing or all electrical or anything like that because the tenants ask me to put the rent where it makes sense. So that's the binder strategy. I don't think I kept it to 5 minutes, sorry.

No, I'm sure. I think it was like 4:59.

Okay, perfect.

No, you're good.

Yeah, the, uh, one of my favorite things about the binder strategy is one, they choose their own rent, so they're not going to be upset with rent because they're like, well, Even if they are, they're like, they have no one to blame but themselves, which is nice. And that's something Cody and I did portfolio-wise where we did not implement that early on. But what we did is we kept the rents below market rate. So what we did is— and I'm shifting to exactly what you're doing— but we would do the show them the comps. So go, this is how we based your rental increase, these are what we're seeing, and we usually come down 10 or 15% from that. And the reason is when when they do get upset and they go look for somewhere else to live, they find out, huh, I can't live for less than this. When we bought a building, the 38-plex, there were rents in there for $350 a month in Washington State. They hadn't been raised since Cody was born.

No, before that, they weren't raised since 1991 when the person bought it.

I was alive. No, wait, no, I was— I was born in '92. I know my birthday. Um, but we, uh, when you raise them, everyone's really upset. And we found out that when we raised them, like, market rent for that area was like $1,100. We brought them to $600 and people flipped out for a second. They're like, oh my gosh, you're almost doubling our rents. Yeah, it's about half of market rent. We're doubling you to 50% of market rent. They looked for somewhere else, they went, huh, I guess we have it pretty good.

We had someone that we took from $600,000 to $800,000 at my 12-plex. I'd just done a massive remodel, took it from two brown turds of a building with a butterfly roof. If you don't know what that is, it's like a flat roof but worse because it goes down in a valley, and in a place that snows a lot, that can cause the roof to collapse, which isn't really great for safety or health. So we did a massive remodel, six-figure roof, and we raised the rent from $600 to $800. We've got places there going for over $1,000 right now. Someone said they were going to leave and then 2 days later said, wait, cancel that, I'm not moving out. It's legit. People will look around and try and find somewhere better because they think they're smarter than the market and realize that, oh, the economy has just changed, things are more expensive.

What I love about the binder strategy though is that you do the shopping for them. Prior to them getting upset and finding out, oh wait, I do have it really good. You put them in a position where they're able to look at it, they're going to do their own research, just going to back what you found because you're showing them real numbers. They're going to go, oh well, I mean, I guess if I can stay here for, you know, if you're, if you're in our 38-plex, if I can stay here for $600, $700 a month, I'm pretty darn happy.

So you nailed it with you did the work for them. That's the reason Section 8 was able to make their adjustment too. They can't go to their boss, the counselor, and say, we want to pay this landlord more. But if you provide actual documents through an email saying, here's what rents are in the area, here's how far you guys are off, they are allowed to make an adjustment.

We need to do that on our 38-unit. We've got 2 people that are on government. Their max payment was $530.

That's what I had a commitment, an email. That's the most we can pay Hey, have a back and forth and then it can adjust. In Thurston County. You too? Pierce County. Okay, F off then with how they deal with it. You have to know your market and how it is where you're investing.

Should we talk about King County?

King County wanted to fine us because we had ugly refrigerators.

They walked through and they went, we hate your flooring. I'm like, I don't care. My tenants who lived here for 15 years have no problem with it.

Find.

Yeah, King County. They can go get bent. The only people that they want to find are the hardworking middle-class people to and from on their way to work, landlords, and people running businesses. But if you point the gun at me and pull the trigger and I take you to jail, they'll let you out in a couple of days because, well, you only shot at an officer. That's not a big enough threat to the community.

Bad carpet though.

Evil.

It is ugly. I will give them that. It was an ugly carpet.

And you had some questions.

Yeah. Mike, for you, your strategy, you went out of state. Now, Gary, Indiana, that is— that's on Forbes' top 20 places to live, right?

Gary, Indiana has been dubbed America's most miserable city.

Oops.

3 times the national poverty rate, 3 times the crime rate of anywhere else. I want you to think of Gotham City, like picture Batman, less skyscrapers, but Batman flying through just wiping out crime, except he never shows up to wipe out crime. But it's a gross city.

Perfect. That— I'm sold. Who's in for that? We're gonna start our first ever fund right now, and we're gonna invest in the Gary Fund.

With it, yeah.

Why Gary, Indiana?

It's a good question. So again, I told, I told you guys earlier how I, I said, like, I'm not gonna be able to save up all this money to invest in Seattle. So I was considering places in the Midwest, and I'm originally from North Dakota. Houses are a lot cheaper there too. But the reason I started with Gary was I had somebody who's a friend of mine who invests, and they were investing in their local market. They had a triplex, they invested in Alabama, and then they had started investing in Gary. And they actually got turned on to the market in Gary by the author of those books, Michael Zuber. He told Mark, then Mark kept bullying me. Mark kept saying, hey Mike, I started buying properties Gary, you should buy some. I was like, okay, let me do a quick Google search. Oh my god, this is terrible. Like, the city is really, really bad. Mark, I'm good, thanks. Thank you though. And he just kept pestering me over and over and over again. He's like, you should try it. And I watched him go from his first rental to like 5 to 9 to 20 to 25. So finally I'm like, all right, well Mark, aren't you experiencing like ridiculous evictions? Aren't you having major problems, tenants aren't paying, you're having to kick people out. And he's like, "No, I'm not. I'm not. I'm not having these problems." Okay, well why not? "Well, I've got a good property manager, she's got a good screening process, I have nice rentals." The key to being successful in a market like this is you have the nice properties. There's a lot of people who are gonna live in the crappy places and you're gonna have problems. But if you have the nice properties, you get to pick from the nice tenants. And nice tenants here, nice tenants there, you don't have those problems with them. Now everybody's gonna still experience evictions occasionally. I've had one eviction of all 10 of my units over the last 4 years. And that just happens eventually. But it wasn't the eviction onslaught that I thought was gonna happen and that I was concerned for. So when I tell people how you should pick a market, you should not pick the market first. You should not pick, oh, well based on my spreadsheet calculations, I'm looking at an 18% cash-on-cash return in Cary versus a 15% cash-on-cash return in Raleigh. Birmingham, Alabama. What you need to pick is the team. Who do you know, and who do they know, and are they doing it successfully? In every market in the country, whether it's a good or bad market, there's people who are investing successfully, and people who are not investing successfully. So all you need to do is find who's doing it right, become friends with them, and then copy and paste their strategies. I know that's what you guys did with, I think your guy's name was Gary. Yep. That helped you, right? You met somebody, and you copied his strategy.

Gary and Dan, yep.

And I had a mentor who was doing it there, and I, after there was enough proof of concept through watching him grow, I got to the point where I couldn't say you're all messed up and you're wrong. So I had to kind of just humble myself, like, all right, I'll actually consider it. And I did, and that's when I started investing there.

That's fantastic. And that's the big thing, the piece of that that I really hold on to is it's competitive advantage. Like, your competitive advantage there is you can build a team, you have people in the market, You're like, okay, I can play this game. And the fact that you're an outsider who is able to come in and control a market that costs a lot less than where you currently live, you get more market control. That's one of the things we actually learned from Gary was it's outsiders that control the market. I've heard that from a few different people. I've heard that on Cardone first.

We've proven concept on that now in Grant County. Two bedrooms rent for more than three bedrooms on CoStar data.

We own more two beds than we do three bedrooms. We haven't influenced the rents there yet.

We manage more 2-beds than most people, and so the rents are higher than the 3s. That's impressive. But you can do that in a county, you can do that in a city or a town. So that's awesome.

Yeah, and so my mentor invests there, I invest there. My mentor, his name's Mark, he's got a couple of kids. He's a law enforcement guy, retired military. So there's probably about 15 to 20 of us that are his close personal friends. Between all of us, we probably own upwards of 100.

50 different rentals.

But you're right, when all of us are talking about how we are going to remodel all of our properties and we want to rent everything for the same price, well, you do have some control with where the rents are. We've been kind of having a pretty highbrow, intelligent conversation, but I want to, I want to ask the audience real quick, like, how many people here own a rental property or own any rental properties yet? Does anybody— I know Tony does back there. Okay, so it looks, it looks like probably more than 50 50%. So people here understand a lot of the concepts we're going. And then the people who don't own anything yet but want to? Just a few? Okay, okay, good. So maybe it's half and half.

Good.

I want to know who we're talking to so we can kind of move the conversation towards the right people. But yeah, yeah, so control of the rents is very popular, or is very important. One thing that I was paying attention to what you guys were saying earlier when you were talking about using the binder strategy and how you guys knew you you could move your prices up. You have to know your market. The only way you know that you can take prices up another $500, $600, $700 is if you have an intimate knowledge of what things rent for in your area. Because you can't just use the binder strategy on somebody who's already paying top dollar. No matter how fancy that binder is, right, if they're already paying top of the line, you can't bring it up from there. So if you're going to do the strategy of I'm going to buy from the MLS an under-rented property, you need to know that it's actually under-rented so that you can, you can actually increase those, those values, which will then force the appreciation on the asset.

And part of the master strategy for Moses Lake— before I started working with Christian, I started buying rentals. I didn't adjust rents at all. And I learned this game— there's a game called Go, and if you haven't ever heard of Go, that's okay, you can look it up. But the thought is you get enough control before you close the gap. And so when I went out and started buying rentals, I wasn't changing the rents because if I kept my rent super low, outsiders control the market. There weren't any other outsiders buying Moses Lake yet. Then we put it on BiggerPockets and a whole bunch of people flooded to the market. However, I just started buying everything up and keeping rents low because all the insiders who are used to the low rents saw I wasn't going to change anything. So they thought, well, I got to keep my rents low. So I kept buying deals super discounted for what they should be because I was buying off of the low rents. So then I bought up to about 100 rentals and all at once raised all the rents 25%. I bought enough discounted properties because they're valued on the income. I bought in a small market that I could manipulate, kept all the rents super low until I was satisfied and thought, okay, there's no competition that could wipe me out, and raised rent all at once and there was nowhere else to go. And it was still below market. I mean, we're still hundreds of dollars a month below market. However, that one push, I waited and bought enough discounted properties to where there was millions of upside on the back end.

That's part of the reason that we lean heavily towards the commercial multifamily 5 and up. Like, I— don't get me wrong, I love our duplexes, and Cody and I have quite a few of them now. Yeah, how many are we at now?

7, 8, 8 or 9.

We have some duplexes, so we still buy some smaller things. But I really like commercial properties because when you raise rent, it just changes how it's valued. Like, it's just worth more. When we started buying— granted, we're a little bit below a 6 cap right now. We'll see if it softens up, we'll go back to a 6 cap market. But, um, I'll let our math guy explain. When you have 100 units and you raise rent just $100, what does that actually do mathematically?

In Grant County, you make $2 million because every $100 that you increase rent, it's $1,200 a year on a 6% return, which is what someone would expect in that market. As a $20,000 value add. So if you have 100 rentals, you make $2 million. And so we waited to get 100 rentals in the market, and then we raised rent a couple hundred bucks, and everybody paid it. And those who didn't, we raised it another couple hundred bucks when they moved out. So we want to scale first before actually optimizing everything. Some people want to optimize along the way. That can actually cost you if you want to grow to over 100 rental units. Because now everybody else is going to raise their pricing. Now all our property neighbors are charging $1,000 for little one beds when they were charging $500, $600, and that just costs us more if we want to go buy it.

Here's the really cool thing that hopefully somebody in here's brain is breaking. As soon as you realize money is not real, it becomes a lot easier to get a lot of it. Here's the example. You guys had a young lady on your show a week or so ago 24.

Sole.

Yep, Sole Cayetano.

So you guys were asking her about a duplex that she purchased a couple months ago. And if I asked anybody in here right now, last month, if you bought milk— if anybody here have kids and you bought milk and I said, is it— was it closer to $5 a gallon or $10 a gallon? You would know. You would know the price of milk because money, you work for it. You sell your life one hour at a time to get money to buy the milk. You guys were talking about Sole's duplex and she said, I don't know, we bought it a couple of months ago and it was like $100 $80,000 or $190,000. There's a $10,000 variance in the way she was looking at money because it's not real for her. Because she's not selling her life one hour at a time to get an hourly wage so that the money is real. When it's still real, it's the only thing. As soon as you can get around the idea that it's not real and properties, you can make a rent adjustment on your rentals and increase your net worth by a multiplier of that. Then getting more money becomes very easy.

How long did it take you to figure that out? I was, I was 28 when I finally was like, oh, wait a second.

I made it to 40 without ever having $1,000 in my bank. So it's not something that happens at a certain age. It's something that happens when you're exposed to the right people, the right network, the right books, the right YouTube channels.

Cody, was there a point for you where you're like, money's not real, or you just grew up being like, no, no, just, you just got baptized in that?

By the way, now it happened when I was 21. There was a lot of realizations I had when I started playing this journey. I was mowing the lawn because I couldn't afford lawn care for my very first 12-plex, and it was 3 months after I bought it, and I looked at the building and I realized that they were actually my bricks. Like, I had owned it for 3 months. I didn't realize, oh, that those are my brick buildings. So it took a while to realize that it was actually real that it had happened. And it wasn't until I had, I want to say, 68 rentals or so that money is just made up.

The first 5 years, it doesn't feel that way. The first 5 years feel very slow for most people until you get that income snowball to kick in and you start having cash flow coming from different sources. And it's a, it's a, it's a hard thing to explain that it's worth getting to. Because the first 5 years stop most people in their tracks. So to go to my very beginning, I didn't do what you guys did and found sellers and developed a relationship. I found out about $89,000 in bad debt, got laid off from a police department, and started working at a truck driving school teaching people how to drive trucks for $17 an hour. So if you have 3 kids, you're making $17 an hour, and you found out about almost $100,000 in debt, how would you buy a rental? I had to figure out how to get around that. And for me, it was moving into an apartment, renting out the house, because a lender told me if I had rental income on my tax returns for 2 years, my debt-to-income ratio and my salary would mean almost nothing, because they'd be able to consider the rents of the properties I was buying if I was buying small multifamily. So you can be in a really bad position and find a way around it. You can be in a position with no job, no W-2, and find a way around it.

Yeah, was that first deal, was that VA or FHA?

I've never used VA and I've never used FHA. It was 5% down conventional on a duplex, but it took 2 years to get the rental income on my tax returns and 2 years to save the $23,000 or so that I had in those 2 years. But that was work, overtime, playing World of Warcraft and selling things online. Literally a side hustle for Tony who works at Blizzard. So thank you, great game. It's provided me a rental portfolio.

That's awesome. I didn't— I've never heard that piece of your story.

The first, the first 2 to 4 years, and then it was another 2 years to buy the next duplex. So you guys, like I said, I would call you motivated hard chargers. Go out there. I interviewed you when you were 19 and you had 30 rentals. Our first, our first conversation, I think, was something—

I would have been 21. That was a year ago.

That was a year ago. It was, you're right. So in the conversation, somebody's 21 and has 30 rentals, here's the takeaway that I got. Cody said, I wish I started sooner.

Yeah, I mean, I did. Caleb and Chuck in the back have 28 rentals and they're 19. They passed me up. They started sooner. They started when they're 18, so they got me beat by a year.

It's the— it's actually the reason why I'm doing the review of you guys' course is because you have investors like this that don't need the course course plan. Like, their strategy is getting financial freedom, and that's what you'll want to learn. I've interacted with some other people, been invited to, hey, take my course, do a review, and I've told them my review is going to be terrible, so they didn't let me take the course.

So what you're saying is we're going to get 1 star?

No, your guys' info is great. I've learned from every conversation I've ever had with you, and so this is definitely not an age thing.

If the video doesn't appear on Dion's channel in 3 months, you know what he thought of our course.

Yeah.

Yeah.

Andrew, you brought your kid here. If he starts investing right now, he's gonna be way ahead of Cody.

Is that everyone's why now? Just to beat Cody?

It's a pretty good one. You got the most watches ever on BiggerPockets with your 81 units by 21. That's a pretty good— it's pretty good target.

Appreciate it.

Mike, what's your, what's your overall goal? Shifting back to you. So you're, you're 10 units in, you're Gary, Indiana. What are you trying to build to? Where are you headed?

Yeah, so I mean, I think probably the reason that most of us are getting interested in investing in real estate is we want to have a little more time freedom. If we can create a system that pays us passive, even though it's not truly passive— Dion makes it pretty passive. These guys, it's a lot less passive for them. They're working for theirs, but it's That's very impressive. But the idea is, right, you can get your time back. You can have a little bit more of your time. My kid, my little 6-year-old just came walking through here and then out the door, for those of you who saw him. But like, I want to spend time with my kid. Single dad, I have full custody. So, you know, taking him to soccer, taking him to school, that type of stuff. My job is somewhat dangerous, I've been shot at a couple times this year alone, so I try to get out before one of them gets me. Tony knows what I'm talking about, he's in the military back there. Dion, you know what I mean? It's a good job. I don't know if anybody here is law enforcement or firefighter or military, but you know, you only want to get punched in the face so many times before you're not a young man anymore. So yeah, my goal is to get to the point where I can retire, spend time with family. But my goal doesn't stop there. I actually have very high aspirations. I don't know if I want to say I want to be like Cody because he might hold me to it.

Do it.

He's big. But I mean, I would love to see my portfolio grow. I do plan to transition transition. So I own primarily single-family houses and then I own 2 duplexes. And I would like to move into— I'm looking at a 5-plex right now, to smaller apartment buildings and possibly larger apartment buildings. The reason that stops me from looking at anything that's over like 8 units right now is because again, when you invest at a distance, you need a team. I have a team that can handle up to like an 8-unit, but I can't go to my property manager and say, "I want you to manage this 40-unit building right now." So I would have to build a team to to do that, which I'm not against. It's just I'm not ready to take that on right now.

You could totally do it. 12-plex is just 3 4-plexes.

I probably could, and that is, that is the strategy to do some form of a 5-plex, some more larger ones like that if I get a package deal. If I get the right deal, I'm not going to say no. I just figure it out. I'll say yes, and then that'll come with a whole host of problems, and I'll figure those problems out. I always do. So yeah, my goal is financial freedom continue to grow. I don't know what my upper limit is. I don't want one. I don't presently have one. My upper limit's going to be Cody, and then I guess we'll see. We'll try to pass that.

Limit's going to keep going up. Okay, there we go.

Caleb and Chuck in the back, if you heard that, you're finding a 40-unit in Gary, Indiana. That's the new mission.

We'll get one that's not burnt out, no cars up on cinder blocks.

It'll be good.

We talk, we talk a whole bunch about the, the owner thing. Like, the direct-to-owner is Cody and my main thing. Like, we bought plenty off the MLS, but that is the most consistent, highest quality deal flow. When we write up an offer, it's already been negotiated, we've already talked about it, we get everything accepted because we're not writing offers all day. Caleb and Chuck are ones who did it the other way, where they're like, hey, we're gonna call every single broker in the state State of Texas. I didn't share this when you guys were on stage, but I, I've read through Caleb's notes. He keeps a spreadsheet and he has a, there's not like a, I would just color code it. I'd have like red, yellow, green for like who's hot, who's cold. He has like a custom note for every single person. And some of these notes are the funniest thing I've ever read. We, Cody and I have laughed for hours on these, like professor of never having fun. And he'll just like go through all these different. It's funny, the time he almost spends on these. But, but the thing is, he remembers them. He builds relationships. He knows, like, I— he, he reads his note and he goes, I remember the conversation with this person. Uh, there's a lot of different ways to play the game, but any building, any size, any strategy, I have not seen anything that just explicitly doesn't work as far as going the owner-broker. You can modify your strategy however you want. You can pick up just about anything. Dion, what's your goal now? You recently retired. You've talked about not wanting to buy anything, maybe wanting to buy something else. So what does Dion do now?

The First National Bank of Dion was open to loaning money.

We were going to have a conversation with Zuber about that. I have a very selfish goal. And it's a goal I hope that somebody else in here gets eventually. So 12 years ago, I was 40. 52, right? Uh, never had $1,000 in the bank, found out about all the debt, went through the divorce, got custody of the kids. Bad position, work making $17 an hour. It's like, I, I can't think of, other than like major health concern, anything else going wrong. Took 8 years to reach financial independence. That's where I made more money from cash flow than it cost me to live. Took another another 2 years to reach financial freedom where I don't look at price tags anymore. And then another 2 years I worked and I finally retired from a job I loved because I ended up being the president of the truck driving school and running 5 campuses, 60 staff, like had a great, great time working there. I had a good day, so I retired. Because I've heard of so many people that had a bad day, they just hated their job so much they finally quit. I was like, I'm at the top of my game, this is the best I'm ever going to do, so I quit. Imagine the emotional rollercoaster of going from life sucks so much, you can't imagine anything worse other than health, to financial freedom, can do anything I want for the rest of my life, never have to get out of bed, never have to be in the country, can travel anywhere I want, my kids are going to inherit millions instead of inherit a father they have to take care of. Like, I've had this huge emotional success, but you can only do it once, right? I'm not stupid. I'm not going to give everything away. Away and just try again, right? But every time I meet somebody that's never heard of the Binder Strategy, never thought of money's not real, so if you get some passive income, you're not working for it, and I can drag other people along to financial freedom to where you can quit a dangerous job and you come home to your kid every day, I get to experience the emotion of that again. So my goal is to figure out how to get in front of people share these strategies and just experience that. I usually share my emails, I answer questions, I do live streams just like you guys do and answer questions like this pretty much every week. Um, and it's very selfish. I do it because of how I feel at the end of the conversation. That's my goal, share the information.

Well, that's awesome. You've, uh, you've pretty much made it there. You get to share quite a bit. Uh, anyone who hasn't checked it out, by the way, it's Dion Talk Financial Freedom. For the longest time I thought it was Dion Talks, so I apologize. I've been plugging you wrong for like a year.

The fan does talk. He talks.

But fantastic YouTube channel. I just like how simple you break everything down.

It had to be simple. So something I don't usually share in person, I will. In Desert Storm, I had some head trauma, so I have some memory issues. And not like a lot of people go, oh, I forgot the kid at soccer practice. I'm the guy that have kids, right? So it has to be a simple— my entire business with 16 rentals is one checking account, one saving account, one credit card. Long list of reasons why no LLC. Like, so simple that you don't have to have a memory for this to work. You don't have to be creative. You don't have to be— you don't have to hire a team to run it when it's that small. And so it's possible to do that. And then it's also possible to take some of my simple strategies, because the way I really like to do this, and I I probably got this off of BiggerPockets somewhere, was treat your tenants like you only have one and treat your properties like you have 100. Even when you just start out, you very first close on your first rental, treat that property like you have 100 and your tenant like you only have one. Was that your BiggerPockets?

That wasn't me.

No, I just like the treat your, like you have 100 units. I was like, I can do that. I can wrap my head around that.

You have systems in place to do that. I have systems in place to do that, even though I don't ever want to have 100 units.

Yeah, you said something though that I actually did want to ask Mike too. You said no LLCs ever. If anyone's ever looked at our structure, we are—

ever— long list of reasons. No for me.

Yeah, no for you. You said, uh, you being Cody— Cody, you've shared on the channel multiple times we have an endless list of LLCs just side by side by side by side.

Yeah, if you ever want to figure out how big somebody is, you go on the MLS and you put in their name and then you'll see all the properties that pop up. And if they have companies, if you want to figure out how many companies they own, you put their name into opencorporates.com and it'll give you a list. We're on to the second page now for that list. So we have a couple LLCs.

Yeah, there are good reasons to have LLCs. Here are 3. Yep. If you have partners, you need an LLC because the idea behind a limited liability company is to protect you from someone else's mistakes. 2, if you want to use hard money, almost all hard money lenders are going to require an LLC. And third, some people use it for anonymity, but Cody just dispelled that with here's a quick Google search that any attorney that's passed the bar and been to training is going to be able to find out who owns the LLC. So there are times where it makes sense to have an LLC. But if you're a brand new investor and you don't have that first rental yet, don't get stopped in your tracks by doing something like creating an LLC because one, how do you name it? Two, how do you pay yourself? Three, how do you keep your funds separate? Because in the counties that I invest, they don't pierce the veil. They use the 1996 IRS, another example, memory kicked in, the precedence that all single-member LLCs are disregarded entities. They don't exist in the eyes of the court. So there's no benefit unless you have partners or you want to use hard money, like there are times it makes sense. But if you don't do those things, you don't need to convolute things by having an LLC. There's 3 forms of asset protection that you can use I don't have anything to do with having an LLC, but that's my opinion. So, not the opinion of Cody and Christian Osgood Multifamily Strategies. That's the Dion talk.

Though I absolutely love the idea of not having LLCs. Like, we have to have 'em for a few reasons, and you mentioned 'em right off the bat. One, we have partners. You have partners, you automatically limited liability company. Guess what that does? Limits your liability. That's the whole point. Separate banking, super, super easy the way that we report it. It adds different protections to you. We also, Yeah, we borrow hard money. We have different lenders who want to be lending to a business, not an individual. So right there, that's where you have an LLC, where I think a lot of people do get stuck for those who haven't bought a property yet. My first duplex, I was told by my dumb mentor, you need to put it in an LLC. So I did that because I was like, oh, I should, this is what you do.

They spelled it wrong.

They spelled, oh gosh, should I share that?

Yeah.

Okay, well, sorry.

So it's Peninsula Duplex.

Yep, Peninsula Duplex LLC. He's like, oh, I know how to file these, let me type it out for you. He spelled it Penisula. And so my debit card comes in the mail and I was like, I can't do this. So I did save that debit card, but I paid the $50 to rename it. Then when I go to refinance, 'cause it's a duplex and I own it personally, it's a disregarded entity, the bank goes, well, we can't do a conventional refinance to a single person LLC. You need to move it into your own name. So then I had to pay the excise tax and move it out of my LLC and into my own name. Then I refinanced it, and then the mentor came back and said, well, you know what you should do now? Now that it's back in your own name, you should do a simple name change and move it back into an LLC. I'm like, this is way too many steps. If you're trying to buy something, it's yourself, don't get an LLC. There's almost no reason. Like you mentioned, there's insurance products, there's all sorts of stuff you can do to protect yourself. If you don't have partners and it's not required, Never do an LLC.

Here's a quick poll. Who in here would get an LLC for the tax benefits? Let's see, room full of smart people. Not one person raised their hand because there are not smart or shy people. Or shy. Well, I'll go with smart. Okay, they're here, compliment the audience. Smart, right? I know they chose to be here. So yeah, there's, there's absolutely no— the IRS, like I said, they're disregarded. There are no tax benefits to having an LLC. You get every single write-off with real estate Last year I had $128,000 in profit, this year $203,000. And you know how much I've ever paid in rental income tax? Not a penny. My tenants pay a ton of property taxes, but I've never paid rental income tax.

Super nice.

Nice people.

Yeah, great, great people.

I will share though that having scaled, if I did it all into one bank account, I wouldn't necessarily, without tracking all the numbers every month, know which properties are performing at the highest level, because I can see which accounts are failing pretty quick. And so I do enjoy having everything separate. So that's, that's one caveat to that. It's kind of nice to have everything stand on its own legs. As Michael Zuber was with economy of scale of having hundreds of units. Yeah, like Michael Zuber is even bigger than us. We got to get him here in January.

Yeah, let's get working on it.

Yeah. But he, I mean, he does a lot. Does he do LLCs?

He— Lumberjack doesn't. He did a trust and did LLC for healthcare for his family. Zuber might.

He— hey, when you had your part of the speech—

oh, he walked on opposite sides because it's not a Zuber-sanctioned statement. I'm pretty sure I have to clarify that it's in my opinion, not someone else's.

He came and put me in between you two. I was like, oh, I want to be here.

Michael Zuber, we're going to get him for the January event. He has more rental units than all of us combined. He's a big fish, and he doesn't syndicate, he doesn't do partners, right?

He just did his first, that I heard of, partnership with somebody where he was the money, they were the work.

Okay.

He did do, uh, and if you actually read through his book, his first book, he talks about his 60-6-20 rule. He would, he would partner with people but only take their money, and he would invest it into rentals. But yeah, he doesn't, he doesn't actually own a property. He cashes them out on the back end when it's it's done when he's remodeled it, but he has partnered with people before.

Cool.

How are you set up, Mike? I've never actually asked you this.

Is it just you?

No LLCs, not for me. Again, just like Dion mentioned, there's not really a huge need for them. They don't add any tax benefit. I interviewed my CPA, my tax guy on my channel. We did 3 different interviews and he said explicitly, dude, it's a disregarded entity. There's not a single benefit you get. The only argument that could be made is that it's possible from an anonymity standpoint, he said, you know, but you guys kind of Broke the hole on that one.

Sorry.

I don't have them, I don't feel bad. But yeah, so to me, you know, one of my mentors, same guy who got me interested in Gary, cop, paranoid, wants to be anonymous, all that type of stuff, no big deal. He has LLCs and he's always bothering me about it. Hey man, you need to get them, you need to get them. But at the end of the day, like, you're paying a lot of money to have that LLC. He had, when he set his up, it cost him like He set up like 10 at one time and he opened a children's series LLC all under a trust within a shell company, very complex. And it was very cool the way he explained it to me, but I'm like, this at the end of the day is $10,000 to put all your properties in here and for what purpose? There really didn't seem to be one. So I'm not saying never. If I partnered with somebody, absolutely. And Lumberjack and I were maybe looking at doing something together and then we could open up an LLC together, but that's a spoiler for down the road.

So, but yeah, that'll be exciting.

I don't need one for my own personal properties. There's no reason.

Awesome.

Well, does anybody have any questions for these two? I have a question for you. You were talking about, uh, Indiana earlier where there's opportunities for like someone living in Seattle where it's a perfect deal for you, but then there's people there that aren't buying on any of those deals.

What are those people biting on then? Can you repeat the question as you answer?

Yeah, yeah, yeah. So I'm going to make sure I understand it too So you're saying, so I live here in Seattle and I'm buying deals out in Indiana that I see, that I find that are a good deal, and you're wondering why no one else is buying it?

Yeah.

Okay, well, so—

Are there other people going towards that area?

There are, yeah. There's people from all over the country who invest in Indiana. Like, it's one of the most popular, like, searched markets because it's so cheap. So people have the same problem I do. Seattle's expensive. California's expensive. New York, Miami, Chicago, it's expensive everywhere. So where can I invest that I can actually, right? So people start Googling cheap real estate. Birmingham, Alabama, Tulsa, Oklahoma, lots of places. Indiana's a really popular one, Indianapolis, Northwest Indiana. So how do I find a good deal and then I get it before someone else does? So a few of the deals I bought were right off the MLS. Anybody could have looked at them. And I got them, I was able to get to negotiate it down. Last one I bought off the MLS was end of 2021. I was able to get them to come down from $72,000 to like $68,000 on the price. And the way that I find the deal is I have a very good knowledge of it. So Michael Zuber, again, the author of these books, he talks about looking at your market every day. And literally every day. Because sometimes, especially here, for those of you who've ever looked here, the last couple years here, If somebody puts something on the market, it might be off in 4 hours. You know, it literally like, it was bid up $100,000 in 4 hours and see you later. So if you look every day, you're going to start to figure out what things should cost. Oh, 3-bed, 1-baths range between $50,000 to $90,000. And they also rent for between $900 to $1,200. That's the market that I play in, that 3-bed, 1-bath. And then you'll figure out what 2-beds cost and what 4-beds cost and what duplexes cost. And so what happens is as you look every single day and you see deal after deal after deal and you run the numbers on it, what's it gonna cash flow and what's the yield gonna be at the end of the year? You start to figure out what an average deal looks like. And then once you know average, you know what bad looks like and you know what really good looks like. So what happens is as you're looking at the market every day, all of a sudden you see, oh, a 3-bed, 1-bath popped up? But it's a little less than it should be? And it's in this neighborhood, which I know will rent for $1,200, this is a good deal. But the only way I can make that split-second decision is because I spent 4, 5, 6 months in a row looking every single day. And you'll know when you find a good deal because it's gonna jump off the page at you, and the only thing you're gonna think about is, oh my God, I gotta make this call real quick because it's gonna be gone. And so you make the offer. I think the one that I just told you about that I bought that ended last year was only on the market for like 6 days. I offered full price.. But then during the inspection, got them to come down a little bit. And that's how I found that deal. It was open to anyone. Now there are other ways that I've sourced deals. I've done wholesale. I've done seller financing, a couple of different seller finance properties. That comes through networking. The wholesaling comes through networking. But ultimately, your knowledge, to quote Tai Lopez, your knowledge about the market is what will give you the confidence to put an offer in. And also, you'll know when people are charging too much. When they're not charging enough. And that can be a red flag. Sometimes they don't know what their asset's valued at. Or sometimes they're selling it at a discount because there's a problem with it. But really it does come down to doing the work, as Michael Zuber says, and looking at your market every day. And you'll start to learn and discover things. And you should become an expert in whatever market you want to invest in. Like, I'm sure you guys know Moses Lake better than any other investor in the entire city, probably county.

Fact.

Right. Yeah, and you know Thurston County duplex through fourplexes extremely well. And I know Gary, Indiana, 3-bed, 1-bath houses better than anybody else. And I'm learning the 4, 5, 6-plex market right now, trying to find a good deal so that I can take advantage of it.

If I can follow up with 2 quick things. First, that was the first question, so you get to choose. Which book do you want? Oh dude. Hard choice? Real Estate Millionaires. Okay.

Thank you.

Congrats, dude.

And the other thing to follow up with is here's the, here's the thing that the other investor is missing that wants to buy in Gary, Indiana: the mentor that gave him the connection to the area. Most people right now, if you want to do it, buy in Gary, Indiana, do you know somebody who lives there, who invests there, who used to live there? So that's the trick to picking the market, is you need that trusted boots on the ground. It's either you live there or used to live there so you know the neighborhoods? Because you've said this in a couple of videos, Gary, Indiana is very street by street. You might get a 10 to 20% return here and 2 blocks over you're going to get a 5, right? Just because— and even doesn't matter what the numbers are, it's that because that neighborhood is so different. So do you have somebody who lives there that you trust, that you think is— that you trust them so much they're probably going to come to your funeral, or another investor who invests there so you can use their network? Like Mike did.

Yeah, uncertainty will stop you from taking action. The only way you're gonna have enough confidence to actually take action, put that offer in, is if you have that knowledge, which is the antithesis of uncertainty. For me, it was piggybacking off of someone that's not trying to sell me anything, has my best interest at heart, doesn't want to take advantage of me, just wants to see me be successful. He has no reason to lie to me. And I've watched him be successful for for a few years. So, so long as he literally holds my hand through my first deal and is the training wheels for me, how bad can I really screw up? And what I, honestly what I thought was, okay, even when I did that very first deal, even if I screw it up, it's a $60,000 house. 20% on that's $12,000. If I make a $12,000 mistake for the $60,000 house versus a $120,000 mistake for a $600,000 house, I can swallow one of those pills a lot easier. And once I got the first one, sat there like this for the first few months until eventually I realized it wasn't so bad. And I was like, all right, now I'll buy another one, and then another one.

So you build confidence over time. That's actually interesting. Cody, I have a question for you. Your first 12-plex, you had no job, no income, taking on a million-plus dollars in debt. You couldn't dig your way out of your first deal if it went sideways. How did you get the confidence to go, I'm gonna do this first one? Because I, I started with a duplex. I actually started with a condo, then I did a duplex, then another duplex. I mean, I started, I inched my way up, same thing. That was so relatable. It's like, if I screw this up, I can afford to screw this up. $30,000 down is not gonna kill me. Losing a million bucks would've killed you at 19 years old.

Yeah, losing a million dollars is highly not recommended. 10 out of 10, don't recommend. However, I structure this and I've learned this, like I didn't know how to communicate it. 3 years ago when I got started. But there's an order of operations for when you're paying your bills. The number one is the mortgage. If you lose the collateral, you're just done. And so I looked at it, I was like, okay, it's making about $10,000 a month and my actual mortgage is $6,000. I could get delinquent on the taxes, I could get delinquent on utilities, they won't shut it down. They didn't even shut anything down during COVID which was Nice, because my old mentor ended up stealing a lot of money from that. But you have to pay your mortgage regardless. And so while I had a $1,250 hard money payment because I borrowed the down payment plus some for closing costs and a little bit of reserves, I looked at it as if I can just make my $6,000 payment every single month, I'm going to pay down the mortgage a little bit, the asset value will go up a little bit more, and I just have to make that nut. I can I can catch up on utilities later if a couple tenants don't pay. I can catch up, like, I just gotta pay those mortgages. I can catch up on taxes. I can catch up on insurance 'cause they'll go like 60 to 90 days without a payment if I screwed up. Never missed a payment, but I just looked at it as if all this goes wrong, I can keep paying the mortgage. I can sign a deed in lieu to the person who funded the down payment, give them ownership of the LLC, and walk away with some learning lessons. And if it all went wrong, and I lost it all, then I'd be in debt $125 grand to the one investor. They'd come after me. It wasn't on recourse, but I would find a way to pay it back someday. That would have been a long time for 19-year-old Cody. Then I would have been in a similar position to you with $89,000 of bad debt because I wasn't even making $17 an hour. However, worst case scenario, I'd just have to figure out how to pay off the $125, seller would take the property back. In worst practical case, I sign over the property to the person who lent me the down payment and I walk away. So I figured I'd just be further than I was, and if it went well, the upside is big enough to where it was worth taking that risk. And then it took one extension. I didn't pay it off in 12 months. Turns out I didn't know how to make $125 grand at 19 years old. So I extended it till, I paid it off at age 21. So within 2 years I was able to earn enough money to pay it off. And then got the rents up just this year, so the rent roll is actually double the mortgage payment now. So it gets easier over time.

Which is a good reminder, when you take on debt, I think a lot of people forget, especially when you're clicking on a video that we've launched, it's like zero down real estate. It's delayed gratification. You do in fact have to earn your way through the money at some point. You can't just indefinitely borrow.

While it's fun to buy a whole bunch of real estate really fast, asked, $12 million of debt is kind of a bunch. So we do have to build a model to where you could pay that thing off. For us, that— Dave Ramsey just posted a video, When's Enough Enough?

Anybody here wish they had $12 million in debt? How much are you at?

$1.8 million. Rookie. No, no, we gotta pump those numbers up. But it is a burden if you let it be a burden. And so you do have to build a model with where you start with profitability, and a lot of people don't do that. We, we bought the white triplex over there. We're going to give a property tour at 5 o'clock tonight after a creative finance session. So in the next hour, we're going to go over there. But that thing, day one, negative cash flow, $7,500 a month. There is good debt and bad debt. That's because it's not operational. But we're going to get that up and running, and that'll, they'll start to produce income. But It's really easy to buy real estate. It's very difficult to hold it forever. That's why so many people, they build their model around selling. A bunch of people build to sell, or they'll syndicate to sell to get their fees. But if you can figure out how to hold said real estate regardless whether it does well or not, that's where you really start to win. That's where, like, you're in a great position. You have a very low leverage point for the assets you control.

Yeah, time, time's the element that's missing in most people's equation.

And you have a huge cash flow for the amount of real estate you've got. I mean, your cash flow is greater than— with 16 units, it's greater than 50 of mine, I think.

But it scaled a lot slower.

Yes. So time, time in the market, yeah, time helps.

Cash flow or recycle capital? You're recycling capital. Yeah. Which grows a portfolio faster because cash flow growth, stability in cash flow faster, but not the asset size of the portfolio.

Yeah. Does anyone else have any other questions for these two before we wrap up?

Question on the binder strategy.

Do you request to increase rent at renewal or only when you buy the property?

That's a great follow-up question.

So generally when you—

Yes. So normally I buy the property and I wait 2 months to use the strategy. So the question was, do you do the binder at renewal? And here was how it worked. The track record was I would buy the property and 2 months later I would use the binder strategy, getting the rents to where I would like them. And so far, 100% of the time, I have not had a tenant say I'm leaving or I don't want to raise the rent. increase in rent. So far, 200% was the smallest increase. And then every other year I would do a 5% increase. I would tell the tenants, there's no rent increase this year because we had that talk last year. Next year there will be an increase. I don't say what amount, but next year I'll do a 5% increase. Most years, 2013 to 2020, that worked just fine. 2020, we had all of the craziness that happened, things you can't say because your channel gets demonetized. COVID, rents went up 30 to 40%. So at the end of 2021 and beginning of 2022, across the board, all 16 tenants— I use even the roommates that I had because I rent out a room in the unit I live in, so I'm that cheap— I, uh, did the binder strategy again across the board. And then next year, probably won't do an increase, and then we'll do a 5%, depending. But you have to watch rents because if you're watching this in YouTube a tenant can use this strategy against the owner. If you are in an area and your rent is significantly higher than area average, you should be having this conversation with your landlord. But in most cases, we're finding properties where rents are significantly lower, so the binder strategy is almost always in our favor. So that was the idea, was once when you buy it, and then only if there's a significant change like what happened in the last 2 years. Are these properties that you've bought on a month-to-month lease then? Because you're talking about raising them in 2 months and so— So this is a smart room. That's exactly the follow-up question. That's exactly how it works. So if it's month-to-month, at 2 months you have the conversation. If they have an existing lease, I do it about 60 days before the end of the lease because you are bound by the current existing lease. You can't make a rent change while that lease is in place.

Place.

And in Washington, you have to give 60 days notice to do a rent increase. So for my tenants who watch my content, during the conversation, we have the conversation, the tenant asks for the rent increase and we agree. So in their mind, they're thinking next month the rent will increase. Then I say, so how this works is next month stays the same, the month after that stays the same, and on the third month we're gonna have the increase, giving them about 90 days. I don't tell the tenants. It's so we can set satisfy the legal obligation that you get your 60-day notice. They have mentally adjusted next month's rent and then you gave them 3 months to get ready for it. The conversation goes so much better keeping the tenants happy. So when it's month to month, it's 2 months later. When it's an existing lease, like if they have 10 months left, at the 8-month point I have the conversation so that we can make the adjustment when we legally can. So, Is there, in the counties that you buy, is there not a rent increase cap? Or like for Washington as a whole, is there not a cap? There is a RCW, a Revised Code of Washington, that says it is illegal to have rent control in Washington. But people who run Seattle are creative. They created their own version where if you're doing more than a 10% increase, you have to give 6 months' notice. And if the tenant isn't happy, you have to pay, what is it, 2 months' rent? To move— it might be 3 months, right? Moving costs. Don't quote me. To move the tenant to where they're going. So we were having a conversation before where I said I wouldn't own stocks and I would sell them and buy real estate. I wouldn't own property in King County. If somebody gave it to me, I would sell it and buy another asset because what happens in Seattle spreads like the plague to King County. Yeah, because like I think Oregon's going to like 14.6 starting on January 1st, 2023 for the cap. So how many rentals do you have? I don't have any. Perfect, great, because I have a friend who invests in Bend, Oregon. We actually did a video together, and there is no rent control under a certain number of units or if you're house hacking. So learn your counties, your states, your specific rules to your location to know that yes, if rent control is a problem, it kicks in when you start going into different asset class, or when you have enough assets for it to impact you. But in places like California, not single-family, not under a certain unit, not if you're owner-occupying a house hack. Like, there's all kinds of ways to work with the system. So, and you hear rent control, most of our brains just say nope.

And rent control is basically a guaranteed rental bump every year. It's like, oh, yep, your rent's going up 11% or whatever the cap is. Like, it's just going up and people expect it because because it can only go up so much. The problem is if you buy rentals that are super far below market, because now you're increasing a small number by a percentage, it takes forever to get to market, and that's where you see people having to write checks to tenants for $20,000, $30,000 to get rid of them.

And that's why when you're starting out, you need to know how many you have to have before you're impacted by it. And if you buy a duplex, triplex, or fourplex, it might not impact you at all.

Yeah, if we had a rental cap on the 38-plex, I mean, imagine how many 11% bumps we'd have to do to get $350 to $1,200. It would never happen. Couldn't happen.

No, we would lose the property far before then.

I just— my understanding is also part of that waiting 2 months not only is giving them some notice so that then they— it's more palatable, but also you might not know— you might not want that renter.

Okay. Right, the main reason that we wait 2 months is to vet the tenants because you didn't get to, right? You didn't run their credit, you don't know their work history. And generally, the tenants— so another aspect of that waiting period before doing that is fix things. I put in coded keyless locks, I replace all exterior lights with LED motion sensor lights, and I ask the tenants a very simple question. When I first owned the property, right when we closed. What would you fix if you owned this place? I've never had a tenant say, well, I would add a bedroom. I've had, that ceiling fan squeaks, or I would like a screen door so we can have the door open in the summer. Spent $100 on a screen door, put in some lights and some locks. Tenants think, wow, this person's taking care of the place. I've spent $200, and then the binder strategy conversation goes a lot better.

It's one of the things we try to do before we do any rent increases. I mean, if your rent's $350, like, rent— the first thing you have to do is increase rent.

Like, that—

sorry, you're going up. Yeah, sorry. But generally speaking, when we pick up a property, that's the first thing we do. Is there any deferred maintenance? Because we're the property management company, we get to come in there. I don't even have to be there as an owner, I just got to be there as a manager. Hey, are there any maintenance requests? Is there anything that the old owners didn't do that you requested that you want done? You do all those little things before you do anything with the price. And it goes a long way if you've swapped out that broken porch light, you've switched a door lock, you fixed a toilet that just runs constantly. The little things, you don't have to spend a lot, and the conversation is completely different when it comes to rent. Being present and communicating goes a long, long way.

That's awesome. If that's it for these guys, then, uh, we'll kick off— or I guess kill your live, not kick it off.

Thank you all very much. Until my next video, thanks for coming to my Dion Talk.

But not today. No, I don't think he started that one without me.

Howdy, howdy, howdy.

Well, we'll take a short break. We're going to talk about creative finance.