The Real Secret to Financial Freedom: Lazy Investing vs. Hustle Culture with Dion Mcneely

The more you know, the more you study, the more this becomes second nature, the quicker you can make a decision. And that's the goal is to be able to look at a deal and not think, okay, what am I missing?

All right. Welcome back to another episode of The Owner Meeting today with my friend Dion. Dion and I go way back. Dion is the one who taught me how to YouTube. His channel's been around for a long time. Dion Talk Financial Freedom. If you haven't checked it out before, now you know, check it out, like, subscribe to that. Dion has an awesome strategy. I'm actually a huge fan of Dion and not just his amazing book editing voice. He, he, he could narrate my life and I'd be okay with this. Dion has built financial freedom in a lot less rentals than it took me to build the same thing. It is investing the lazy way, which is a fun way of saying the most intentional way to do the least amount of work to make the most amount of money. We're going to talk about the binder strategy, something that Dion's taught me that may or may not be crazy and may or may not work for a large portfolio. We're going to discuss that. I think we might have opposing views. I'm excited to dive into that today, but Dion, welcome to the show.

Howdy. Happy to be here. I think there's a fundamental difference in between you and me when it comes to investing, and part of that is actually based on age, right? So I started investing when I was 40 and my kids were becoming teenagers. So I was on the, they're about to age out to become the empty nester. So for me to retire, to be financially free, I focused on the right amount of cash flow from the least amount of units. With you just having a baby and starting that 20-year journey, I don't know that the right size portfolio would be the right way to go. I think the largest portfolio or a larger portfolio that you right-size later might make more sense. So I really have a lot of respect for what you're doing. It's different than what I did. That doesn't mean I'm right or wrong. It doesn't mean you're right or wrong. It means I think a person needs to look at their situation and their end goals, their timeline, their resources, and then pick a strategy that works for them. Yeah.

And I think the basis of my strategy came down to, I'm like, okay, I have time on my side. I'm just about to turn 33. I have, you know, probably likely a little less than halfway through my life. I have a lot of time on my side. So the larger portfolio I have, the more times that's going to multiply and make a lot of money. So if you happen to have hundreds of millions of dollars of real estate and it doubles a couple times, turns out you make a lot of money. If the goal is financial freedom, you want to focus on the most efficient portfolio that you possibly can. Cash flow per door. How much money can I make with the least amount of units? If you can combine both strategies and buy a lot of units and also have a very high cash flow per door, I'm imagining there's probably a middle ground between what I do and what Dion does where you can make a lot more money than either of us do. Dion, how did you settle on the strategy that you came up with? You talk about buying one rental at a time. You call it the lazy way. I don't think it's that. I don't think it's as lazy as you make it sound, but it is a very moderate, measured, steady pace moving forward. How did you come upon your strategy?

So growing up, like a lot of people, I, I, I had a dad who said, if you want to find the easiest way to do something, ask a lazy person. That was his way of telling me I was lazy every time I wasn't doing something. So when it came to investing, I thought the lazy way would be asking a lazy person, how would you do this? Because they would get it done with the least amount of effort. I was working full-time. I was a single parent with 3 kids. I had just changed careers. I got laid off from law enforcement from in after 2008 because of the housing crash, right? Municipalities weren't making a lot of money, so a lot of officers got laid off. So I started teaching at a CDL school. I was learning how to be an instructor. I was learning a new field. I was raising kids. I was, I was working and doing overtime because I was only making $17 an hour when I first started there. And this wasn't like in the '80s. This was, you know, 2010. $17 an hour still wasn't a lot of money.

For you young people listening, that's not a lot of money.

No, it's not a lot of money. And I knew that if investing in real estate was hard or harder than it had to be, I wouldn't do it. I would've just worked my job until I was 70, but I have to live somewhere. So I incorporated house hacking into the idea and I started out with a lot of bad debt. I found out about $89,000 in bad debt in my name I didn't know existed until the divorce. So bad debt, low income, raising 3 kids. I didn't have the energy to go do BRRRs or rehabs or meet owners. What I did is I had about 15 to 20 minutes a day, and I didn't find this until 2018, but One Rental at a Time, you know, Michael Zuber, it's right outta his book. 15 to 20 minutes a day, every day. I can look at deals on the MLS. I can make offers. I closed on a deal. I started saving my first, deal that I closed on was a duplex house hack, right? I moved from my house into an apartment and rented the house out for 2 years to get rental income on my tax returns. That got me around a bad debt-to-income ratio. All this time I was working, I was saving, I was fixing my credit score. I was getting 2 years in the new industry, right? I hadn't been a CDL instructor before. I'd been a Marine, a cop, and a truck driver. So lenders would look at CDL teaching as that's a new career. So 2 years of that, 2 years of rental income. And then in 2013, when everybody was screaming home prices are finally higher than they were in 2008, no one should buy anything, it's going to crash. I bought it. I, so I bought the duplex, I moved in, I started house hacking, and I knew that I could do this every couple of years. So I thought in 10 years I'd have 5. 5 duplexes would be 10 rentals. I might not be able to retire on that, I would have a better retirement with that. You add Social Security in there and you put me in my 60s. It sounded great. What I didn't expect was at about the 6-year mark, so I got a duplex in 2 years, then I got another one in 2 years. The next one was a year and a half. Right about that time, the income snowball started to kick in. And that's why I started making more money at work. I had some ideas that grew the company, so I got demoted down to a leadership role. And I got the, the house was cash flowing. The duplex was lowering my expenses. The next duplex was cash flowing. So then in 2020, I acquired a fourplex, emptied out my retirement accounts, acquired a triplex. So instead of going 5 duplexes in 10 years, I acquired 16 rental units. And in 2022, after 12 years of investing, so at 10 years I could have retired, I worked for a couple of more because I wanted to do what's called a litmus test. I wanted to live off rental income and never touch a penny from my job to make sure I could. And then in 2022, I was like, I'm making more money from my rentals than I am from my job. I haven't had to touch money from my job in years. I feel kind of silly going to work. So in 2022, I retired. 2.5 years now. I've since then added a duplex. So again, I'm still only one every couple of years. I'm not looking to grow a massive portfolio, but Here's the math. 18 rental units for those math people out there who, who like to know what the numbers are. I'm a little over, so 2013 was the first one. I'm at 12 years of owning rentals now, of buying them to be rentals. 18 rental units on 8 properties. Gross rents every month is about $35,000. It's a little more than that. I have about $9,000 a month in mortgages going out. So principal, interest, taxes, and insurance all covering that. And then I set aside a little more than $5,000 a month for repairs and maintenance and vacancy. So it's about 15% of gross rents get set aside. That leaves me $21,000 a month when I'm used to living on 4. I'm like, my expenses very rarely go before, and I travel to places like Thailand and Colombia and Portugal and I scuba dive and I spend about $4,000 a month while I'm doing this. But I have $21,000 coming in, so I'm still kind of accidentally saving for the next rental. Not on purpose. I'm not trying to have a bigger portfolio. I don't even know if I want to keep 18. At some point in the stabilization phase, I might sell one or two, cancel some debt, and you know, have less properties to manage, less tenants to take care of, less responsibilities, more cash flow because I don't need hundreds of thousands of dollars. I kind of don't need the $21,000, but I'm definitely not stupid and going to make it smaller.

Yeah, it's good to not reduce your income if you already have it. How much time do you actually spend right now managing 18 rentals?

So there's, there's a guy on my channel that's tracking my time every week in my livestream at 4 o'clock on Tuesdays. I do a livestream, which is today when we're recording this. I have a livestream today at 4. And there's a guy every week, he asks me, how much time have you put into this? And I've been tracking and it comes up, I average about 2 hours a month. So multiple, some months when I have a tenant turnover, I'll hit 5 hours, but most months It's 30 minutes most months. I verify all rents came in. I handle a text or two with a handyman that is in a group text with a tenant that reached out with an issue that I don't even get involved with up to a certain threshold. And then I'm trying to think of— there was some other thing that I occasionally do. Oh, input the tax data. I got to put receipts in for my one spreadsheet with an income tab and an expense tab that I send to my CPA for taxes. That's how hard it is to manage a rental portfolio. You can make this pretty simple or you can make this complicated. For me, 2 hours a month is good.

2 hours a month. I was, Dion and I were talking about this a little earlier with all the, we talked about hustle culture and we were talking about how many things we do. And one of my companies where I actually get to be fairly passive is property management. I spent more time driving to get new business for the 2 days that I worked at that company than you spend in a month on your financial freedom. That's one of my jobs. I have 5 core companies and that's the easiest one. I spent more time on one road trip, one direction than you do in one month on your portfolio.

Well, compare your early 30s to my early 30s, right? I was 12 hours a day working as a truck driver or as a cop. And not making any money, not building a better future. I didn't even start until I was 40. So I totally get it. You're in the hustle culture age bracket. And yeah, some people might want to be lazy like I was at that age or like I am at that age. But when you get into your 50s, to me, there's this— people kind of attack me all the time and they say, well, you're not retired. You have rentals. Well, yeah, 2 hours a month is totally different than 50 or 60 hours a week, right? And then they'll go, well, you also do YouTube. And so I've never heard somebody say, Dion, you scuba dive. You're not retired. You go scuba like 2 times a week. It's cold in the Pacific Northwest. So you got a dry suit. It's uncomfortable, but you get in the water. It's amazing. Right? So in the water is amazing. So can you be retired if you go scuba diving? The challenge is YouTube makes a little bit of money. So people go, Even though you think it's a passion project and you like to go and make videos and you're just helping people buy rentals and you're helping people get on the property ladder and you get to share your knowledge, since you make money and you spend— I do the livestream for like 2 hours and then I do 2 10-minute videos in the week. So I'm about 4 or 5 hours a week doing YouTube. Is that a job or is that something I do because it's fun? Because I do way more than 5 hours a week scuba diving or paddleboarding and nobody's ever accused me of not being retired because I'm doing that.

Well, and real numbers, what does YouTube actually bring in overall? Like what do you make being a YouTuber in real estate?

I could share the metrics if it would let me, but I make about, I think my best month was like $1,200. Most months are $700 or $800. So I made around $10,000 from YouTube last year. I think with my receipts related to YouTube, I lost about $5,000. Based on some of the things that you do to grow a YouTube channel, things I wouldn't do unless I had it. Like there was a tenant turnover. I don't go to my properties. I like, I've never been to a property and then made an offer on it. Like I make an offer. If we're under contract, I might show up for the property inspection. I might just wait for the inspection to come to me. So I don't generally go to them. I have gone and signed some leases. I stole from the lumberjack landlord, the idea of hiring somebody for $30 an hour to go and sign leases for me. But this last tenant turnover, because of YouTube, not because I own rentals, but because of YouTube, I went to the unit. I was like, okay, I know these people. This place is going to be messy inside. So I went, I recorded a video. I took a full face mask because it smelled. They were smokers and they stole all the electric plates and it was just, it was a mess, right? So I've had people say, well, I wouldn't be a landlord because of how bad that experience was. And I'm like, no, I didn't see this because I'm a landlord. I saw this because I have a YouTube channel. As a landlord, I would, I have a handyman. He says he'll clean up any place, empty it out, completely gut it of all trash and everything for $400. I pay the dump fees. So the more the tenant leaves, the more it's going to cost me, but the person gets to keep anything they find. So I don't care what he finds and that's something the tenant left behind. It's $400 to clean it out. So as a landlord, I've got— you need a guy or team or a girl or whatever to go do that kind of stuff. Because if you are the landlord and you go in and you see a property as trashed as the one— and I have a thumbnail, there's two of us wearing the masks in the thumbnail because I took my son in, which I think was a mistake. But you want to see how trashed a tenant can leave your property. The emotional impact, if you're not expecting that, would tell people I would never want to be a landlord. But I've had a lot of tenant turnovers and I've never seen the inside except for doing it for YouTube.

Huh. It's a very interesting model. And I'm thinking about this, uh, because you mentioned like I'm hustle age. If you were listening to this podcast right now and you happen to be 20 years old, you started, you know, when you were starting the investment journey, you were making like $17 an hour. So it's not like you're making crazy money. You could be 20 listening to this and you could be in a similar position to you doing the exact same steps. By the time you're my age at 32, 33, exact same cadence as Deon, you could be in the same position. 18 units, financially free, making more than you spend in a month, able to vacation. You don't actually have to do the hustle to get there. You could, if you have a job that you like, fine. You can sit in the job for 10 years, earn your way through, buy some rentals is a viable way to do it. Yeah.

So I put on the book of faces this morning because I like to stir the pot. I actually have a sentence that can piss off the left and the right at the same time. I like to put on there. But today I just asked the question, how old should a person be to retire? And I could tell about 90% of the people that follow me on Facebook watch my content because they were like, well, it's not an age. It's after about 10 years of investing. It's after your cash flow reaches a certain point or when you want to, right? Very few. If you want on most people's social media and you say, how old should you be to retire? You get the argument of 62 when Social Security is available, 65, the normal retirement. They're pushing it to 67. You start getting all these age things and it's not about age. It's when you realize that we think we have two financial lives and the second one begins when you realize you only have one. And most of us wake up and when we're 40 or 50, we're like, oh, I'm getting close to retirement. I better start doing something. Very few people do what you did. And start creating streams of income that don't rely on you selling your life 1 hour at a time. That's kind of rare for guys in their 20s or 30s to start doing. It's usually when you realize retirement's going to happen that you start thinking about it. And so if we could find the person out there that starts at 20, right? People usually go and rent a place and they have roommates. Makes total sense. Most of us did that. We had roommates when we moved out of our house. Very few people are willing to go and buy a house and have roommates when you're 20. It's like, we'll say, okay, we're going to rent a place. My friends are going to help me pay someone else's mortgage, but don't you dare help me pay my mortgage.

It is a really interesting, especially with being on the side of entrepreneur, looking at people who have a 9 to 5 and the thought process, it's just completely different worlds. You, you talk to people like, oh yeah, I wanna do this and I want the security of this. And like all the reasons people love having a 9 to 5 are the reasons that I would never want a 9 to 5. I'm like, I have no security in a job because jobs end and economies change. I like having control over everything, which is why I have my companies. I am not retired. I, I get this all the time. People are like, well, you have all this time to buy rentals. I run the YouTube channel, the property management company, the education company, which by the way is a full-time job by itself. I do my renovations, I have hundreds of rentals, and I'm directly involved in managing them. I go to my properties frequently. Management by walking around has been effective for me. I catch things that other people don't, and I have a lot of rentals. I just want to point out. There's never been a point where I don't have at least 2 full-time jobs. Like it's financial freedom does not mean you're not working. How do you define retirement? When, when are you, when are you actually retired?

It's a great question and I think it's very subjective. I think retired can be applied to a field, right? You do 20 years in the military or 20 years in law enforcement and you can reach a pension and you retire. A lot of people go then start another career. To reach another pension. So they retired from that field. For me, it's the FIRE community, Financial Independence, Retire Early. I like the financial independence part, right? You're, you're, my job, your job can't be taken away, right? Due to something outside of your own control. You can sell it, you can quit, you can do those things, but you have that control that you talked about. But it's the person, the person I'm most concerned about are the people who have a W-2 job. It's their only stream of income. So if you're replaced with AI, if your job is outsourced, if the tech that you make your money from is replaced and not needed anymore, those are the people at the biggest risk, especially during a recession versus the person who has whatever asset class you chose. It can be stocks. It can be crypto. It can be real estate. It can be entrepreneurial running different businesses. You have different streams of income and they always, I think they almost always get it wrong. They say a millionaire has 7 streams of income. To become a millionaire, most of us had one stream of income that worked, that we mastered, whatever it was, whether it was rentals, education, real estate, your job. You might be in sales making $400,000 or $500,000 a year. Sure. It was your job that did it. Once you become wealthy, now it's when you go, okay, how do I get streams of income? Diversified.

Yep.

If you diversify, you, you won't become wealthy. The person who's like, I'm gonna invest in stocks and crypto and retirement account and real estate and short-term rentals and self-storage, and I'm gonna try 3 different careers. They never master any one of them. Yep.

It's a good way to secure your brokenness. I'm, I'm broke and I have a bunch of very small streams of income that amounts to not freedom. That's, it does not help. I mean, I suppose better than keeping up with the Joneses, but by about one step, like saving.

Sorry, to answer the question on retirement.

Yes.

It's, to me, it comes down to rich versus wealth. So if somebody has a job that makes a lot of money, they can be rich. They can have a lot of money, but if they quit their job, the money can go away.

Yep.

Wealth is an equation. Moles, months of life. If you stopped working, you stopped actively contributing to your investments, to managing your investments, to whatever, you've got a property manager, you have have a portfolio manager, whatever it is, if you just stopped spending your time on it, how many months can you live your current lifestyle before you run out of money? So in my case, I make about $21,000 a month. It would cost me $3,500 a month to have a property manager at 10%. I would negotiate way better than that, but let's just say 10%. So I'm 35. I would have somewhere around $17,000 coming in. I spend 4. I can live perpetually and never put any more time into my portfolio. So wealth would be my version of retirement to where I could choose to work if I want to, but I would never have to. So that person that has money that comes in because they actively contribute to the income source in my mind is never wealthy no matter how rich they become.

And I'll take that one step farther. In real estate, there's only 3 types of money, you know, cash flow, liquidity, and equity. You need to hit that cash flow number, especially when you're building. Like that's the one that gets you freedom. Your ability to regenerate to the capital is super important. You're able to expand and maintain it if you have adequate liquidity, which ends up just being an emergency fund. If you can run the business, I think Dave Ramsey actually has a great method for this with a like 3 to 6 month of reserve. Like if all my tenants stop paying, do I have money to just float to the expenses? If you have that, on a stabilized portfolio, you're very unlikely to lose it. Congratulations, you have enough liquidity. Equity adjusts with the market, so you have money here so it doesn't just get eaten away. Your rents go up, so your cash flow goes up and your actual net worth goes up because it's tied to real estate. As money gets less valuable, housing tends to go up. When you hold all three, now you're rich. Now you're actually wealthy in real estate. You have the income, you have liquidity, you have the cash flow.

So hang on a second. I want to go write this down. It's income because there's one that I want to go over. Liquidity and cash flow.

Oh yeah. Sorry. Cash flow is income. Cash flow, liquidity, equity.

Equity. Okay. So it's equity. All right. So I want to blow up Dave Ramsey's mind.

Okay. Let's do it.

Because there's a fourth. And the fourth form of currency with real estate is the— I did a video recently. It's the best gift I've ever bought myself. Some people say I bought time freedom. Some people say I bought cash flow. Some people say I bought equity. The most important thing I've ever purchased for myself. This is what set me free. This is what gives me the time freedom. This is what gives me the cash flow. This is what gives me the equity. I bought the debt. That debt gives me levered appreciation. So I have $100,000 in a duplex. Yep. It goes up 5%. I don't gain $5,000, I gain $20,000 because I put 25% down on a $400,000 property. That $300,000 in debt gives me the appreciation. I get levered depreciation. I invest $100,000, I get a 10% cash-on-cash return. I make $100,000 on that property. I pay zero taxes because I'm depreciating the buildings on a $400,000 property, not a $100,000 property. I get principal paydown every month, and I wasn't even using this in my equations. I made a mistake on a recent video. Right now it's about $4,000 a month the tenants pay off in the mortgages, actively adding money to a savings account that I don't contribute to. And then I get inflation-based debt destruction, which is a term I take from Jason Hartman. So it's not my thing. It's Jason Hartman. It's the first time I heard it was from him, but I borrowed money in 2020 rates, 2018 rates. In 2020, but the tenants are going to be paying that back in 2030, 2035 in 2035. So inflation-based debt destruction, that's the most important aspect to me. And I love it. I had never thought of equity, liquidity, and cash flow, but to me, add that debt. That's the thing that's— and so people go, oh, don't you want to pay off your properties? I'm like, no, maybe when I'm absolutely done growing my portfolio, I'll stabilize it. Sell one, pay off the debt so I could own or sell it and own or finance it to somebody else someday when I went totally retire and don't want to even do 2 hours a month. But for now, the best thing I've ever bought myself is the debt on my properties.

The first thing I want to pay off is all the personal debts. It'd be nice to, my goal is to own my house because it's mine, to own my cars because they're mine, and we can keep the leverage on the real estate. At some point, I think you do hit a point like you mentioned, hey, I can't really lose a property unless I stop paying my taxes. If I have no mortgage, you can let the properties pay themselves off. But the first thing is, hey, I don't personally want to owe anyone anything. That would be a great feeling. Now granted, I put my properties in LLCs. I also have partnerships. I also like buying out partners, which means I have a lot of partnerships to buy the equity out or to sell the equity to a partner to pay down my portfolio. I have pieces to move. You did this without partners. I believe that you want to buy real estate with as few variables as humanly possible, which is why I'm all about long-term cash flowing fixed rate debt. Buy deals that pay you day one with fixed variables. Humans are a huge variable. Deon's strategy will let you avoid that. Christian Osgood's strategy, you need people to build a large business if you lack money or you want to buy more real estate. Than you could ever afford by yourself with a bank. You, there's no, there's no way that you could build what I built without more people. If you wanted to do Deons, you have a different level of safety. You have astronomically more control of your portfolio than I do. There's no other decision maker. There's no one who has a financial crisis and calls you needing to be bought out of a deal. There's no one who gets angry at you when a tenant vandalizes a unit because it's obviously your fault as the manager that they have formed a new drug habit or rekindled an old one. You have a different, there is a security in your method that I don't want to overlook. You have 100% equity of the equity of your properties and 100% control. That is an amazing thing.

So there's a part of the Socratic method of debate There's a lot of aspects to it, but one of the aspects is if you and I were going to debate something, I have to explain your position to your satisfaction, then you have to explain my position to my satisfaction. So you just did, you explained mine. I have 100% equity. I have the least amount of variables. So I'll flip the script and if somebody wants a larger portfolio, that scales faster, that ends up with more cash flow, your strategy is exponentially better than mine. Mine doesn't do any of that. Mine doesn't scale very fast, right? I got to 18 rental units. That's probably one of your deals. You've got a 36-unit something. I think of the one that had the roof water issue or something. I forget what it was, 28-plex or something. So one of your deals could be my entire portfolio. So your scale's faster. Mine took years to acquire one, two years to acquire one thing, two years to acquire another versus your ability to acquire the next deal just comes down to how do you meet the owner? How do you negotiate the deal? How do you find the deal? Mine had none of that, none of that involved in it. So while you had a lot more variables, you had a lot more control. You have a lot more pieces you can move now. Right? I can't buy a partner out. I can't have a partner buy me out if I need money. I could sell a portion of the portfolio, right? So people need to look at their end goal and think, what does Christian do that would get me to my goal? And what does Dion do? And maybe find an amalgamation where you take, okay, so I like the lazy thing. Like you said, you probably wouldn't use the binder strategy on a portfolio of your size. How many, how many units are you at right now?

I need to recount 'em. It's around 325. I just went under contract for a 9-plex and a 79-plex, so I should be at 400 in the next 2 months, but you know, a little over 3.

Okay. Well, so I just had a 1-hour call with a guy named Brent, met through the Hemlane platform, right? He's got a little over 400 units. So Brent has 400 units and he wanted to talk about kind of the self-managing. He kind of has some employees, right? So he doesn't have his own property management company. He self-manages with a couple of employed. So it's a version of that. And we went over the binder strategy for him. So for anybody who's not familiar with the binder strategy, just in case you haven't seen, it's where I get my, I don't raise my rents on my tenants. My tenants raise the rent on them. And then we call it the binder strategy because it's actually, it's a 3-ring binder. And this is a version that I'm updating for one that I'm going to be doing soon. But this was a version that I did in October or November. The rent was at $1,460. The tenant had been bindered already. I wasn't going to be doing a rent increase, but Washington State talked about rent control. Rent control is an amazing thing to come up on the, the ballot here in, in Washington. So because it was coming up, I went and I showed the tenant the first page is what Section 8 would pay for the properties. The second page is a map of the area and what rentals are in the area going for. The third page and like the next 5 pages are rentals in the area that are for rent with the same number of bedrooms or bathrooms and same number of parking spots or whatever, as similar as possible. I showed the tenant their rent was $1,460. Section A would pay, I think it was $1,987, but this year it was going to $2,057. I showed comps that were around $2,100. So they're paying $1,460 area average. If they moved out, I would get Section 8 at $2,000. I would get a renter in there at $2,000, $2,100. And I just asked the tenant, what do you think is fair? And she countered with $1,850. So it's $1,460. If I went in and said, hey, I'm the landlord, I'm raising your rent $100, I'm a jerk. The tenant would get angry. They'd probably move. I get flamed on social media. But I went in and I educated the tenant and I didn't change the rent. I asked them what they thought would be fair. I showed them what would happen if they moved. I said, and I kind of set the money as like, I don't expect you to go to $2,000 or $2,100, right? That's what I would get if you moved out and I fixed the place up. But what do you think is fair? She suggested $1,850, and I said, that would be fair to me. How about we go to $1,700? So it was a $300 increase to her, not as much as she suggested, less. So that's the binder strategy. And if you think it took me 10 minutes to make the binder and probably 15-minute conversation, but I had to go there and everything. So take an hour out of my life. You have 300-something units. It'd be so time-consuming to use the binder that it absolutely wouldn't work, right? So when I talked with Brent with his 400 units, here's the version that would work for Christian. You have all of your tenants' emails right now. Most property managers send an email saying your current rent is this amount, your current utilities is this amount. Sometimes they'll put in, based on increased inflation of property taxes and property insurance and the cost of materials, your new rent is going to go up X amount of dollars. Most tenants get angry. They just see the increase. So Brent is sending an email to all of his tenants. He's got 5 different locations for his properties that he's, that he's in. So he'll have to make probably 5 or maybe 7 binders. So he'll make 7 of these in email version. 2-bedroom units in this one, 3-bedroom units in this one, right? So make it match the thing. You'll send an email saying, here's a screenshot of what Section 8 would pay for your property. Here's a screenshot of what Basic Allowance for Housing would pay for the military in your area. Here's a screenshot of rental units like yours for rent in the area that are this much more than yours. So now when you say your rent is going up, you're not saying it's going up because your expenses are more. It's going up because area average rents have gone up so much. And if they were to move, not only would they pay more, but you would make more. So when you give that increase now, it can be more than you were expecting and the tenant will be happy. They will be educated. They'll be aware of how much the increase could have been or would be if they moved. So there's a version of the binder strategy that you just use through email that works on a scaled level to where it doesn't take maybe 2 hours of your life to put together and send off. And then you'll have less tenant turnover because you have rent increases with tenants that aren't as upset because they just got a rent increase. They were, they were shown the mental process that got you to that rent increase. And so I'll know probably in 2 or 3 months what his turnover rate for lease renewals was for this year compared to last year. And I will let you know.

Okay. Here's the one problem I can foresee with this. I have— well, we'll take— I have a 26-unit campus that comes to mind. Uh, Stephenville, Texas, 26 units. Tenants all talk to each other. I send this out. One tenant says, hey, I'd be happy to pay $750. Another one says, wow, $950 sounds fair.

So, so you missed the part. So, uh, Brent is not doing a request for what's fair. Brent is saying, here's what your rent is, here's what the area rents are, here's what BAH is. So then you announce your rent increase. That's the twist to the binder. You're not asking the question.

Okay, so you are, you're still dictating, right?

You're still dictating, but you're dictating with knowledge. You're saying, you're not saying, look at what a great deal you get. You want them to, to make that connection themselves. Here's what BAH would pay if you moved out. This is what I would get. This is what Section 8 would pay. This is, this is the rentals in the area.

Setting the, the stage for here is the, here's the materials to make an informed decision on where you want to move.

Because a lot of owners make the mistake and they think, if I let the tenant know my expenses went up, my property taxes went up, my insurance went up, that they'll understand I have a rent increase. And I want to be very clear when I say this, like a military instructor tapping my foot, saying, this will be on the test. Tenants don't care about your expenses. I can prove it. If you have a paid-off house and I have a house with a mortgage, if the expenses mattered, The one with the mortgage would rent more. Tenants don't know if you have a mortgage or not. They don't know what your expenses are. They don't care. They care what rents are in the area, what it would cost them to live somewhere else. And if you take the time, the 10 minutes to take some screenshots of other rentals off of Zillow or Realtor or Redfin that are for rent in your area, and you send it to the tenant and you say, your rent is going up, but here are the rentals in the area that are $300, $400 more than yours because That's where somebody moved out and somebody spent $10,000 on a rehab. Of course they're going to get market rents. You're keeping a tenant in place. You're saving $5,000 to $10,000 on carpet, on taking out the carpet, LVP. Big deal. Yeah, it's a huge deal. So you don't have the turnover. Yeah, you won't get market rents. You're not getting stupid rich numbers, but you didn't have the expense. You didn't have the time commitment to a tenant turnover for that rehab. So for me, I call it lazy because what do I want to do? I want to keep the tenants in place. The binder strategy helps me do that. I buy properties that are side by side. I don't like over-unders because you have noise complaints. I buy properties that have washer dryer hookups in the unit because if they're using a laundromat or a shared laundry, they're waiting for a place to open. I buy places that have good parking. I buy places that have pet-friendly fenced yards. I'm doing all of this before I buy the property. What I'm hunting for keeps the tenant turnover low because as the lazy investor, I do enjoy tenant turnover when it happens. Yeah, the rent goes up. I'd spend 10 grand on a rehab. I have the nice shiny new thing on the market and I get the market rents. It's great.. But when you're working and you have kids and you have a portfolio and you have several jobs, it's so much easier to keep a tenant in place, not do the rehab for a few years, get the rent increase without tenant turnover. Happy tenants don't trash your property. Happy tenants don't leave. So yeah, there's a version of the binder that works with a large portfolio. My— there's a, that's, it's very close to the version that I use with Section 8. So I do the binder strategy with the tenant. We sign the lease. Then I send the electronic version to Section 8 with the email. Here's the lease that the tenant signed. And there's a caveat in there saying pending housing authority approval, right? So I'm not stupid. I signed a lease with the tenant, but the housing authority still can sign the contract or not. And I send their, their screenshot from their own website. Here's what you're allowed to pay in our county. Here's the verbiage that says you're allowed a 10% variance if there's a shortage of units in our area. Here's what BAH, the screenshot of the rentals, same number of bedrooms, 'cause they don't care about anything else, just bedroom count. And I go, this is how much the rents are. I had— this was— it's now at $3,000, but there was a Section 8 rental where they sent me an email saying the most you can go up to is $1,800. And I said, your website says $2,380 at the time or something like that. Here's the comps at $2,300 and $2,400. I want to go to $2,200. And they sent back the email, okay, we accept. So I got an email saying $1,800 was the most. I sent an email and I got a $400 increase from what they capped it at. I'm still below what their cap is because their cap has to include utilities. So, so I'm below what it's allowed to be. I'm legal on that. And then when it went up, I'm at $3,000 and their cap is $3,000. That's supposed to include utilities. But I sent that screenshot of here. You're allowed a 10% variance, so I could be $300 above it if you're short units, which we are in our county. So if you know the laws and you know how to communicate, you can do the work for the housing authority person because they can't go to their boss and go, we just like Christian. Can we just pay his rent more for his tenants? But if you do the work for the housing authority and they can just take the work to their manager and say, they looked at the comps, they know what we're legally allowed to pay. They have a lease signed with the tenant. The tenant has agreed to this amount. I've been approved every time so far.

And different housing authorities around the country will have different levels of strictness. There's a human element to it. Some places don't need housing as desperately. One of the ways you can test that, by the way, is you can call a local housing authority and say, hey, how many vouchers do you have out right now? And how many expired last year? That'll give you a great idea of how much need there is in your area. But you go through, and by the way, learn that from Lumberjack Landlord. You come in, you can build an awesome business with Section 8, and that is the exact way you do it is you go, okay, what can I do? They have to make their decisions based on data. There is no federal rule on exactly how their data needs to be collected. If you have the comps and you send it to them, you say, this is why I believe this is in compliance. Most, not all, but most housing authorities will approve your request within reason.

Two things about Section 8. First, I use it as a diversification strategy. So I keep about one-third Section 8, one-third military, one-third working or retired. So a prolonged government shutdown, a pandemic, a stock market crash, an eviction moratorium only impacts certain elements of my portfolio too. Protect me in retirement. But the second thing is you nailed it. The housing authority is run by humans. And so I would never want to name anybody by names, but Pierce County, Washington sucks so bad. I would never own a Section 8 rental there. Even communicating with their counselors is a challenge. Thurston County, Washington, amazing. Love dealing with them. So my one-third of Section 8 tenants are all in Thurston County. I won't own one in Pierce County. So if you are unlucky and you're in an area and you reach out to talk to your housing authority and they're rude, condescending, dismissive, or demanding, yeah, maybe it's not the strategy for your local market. I expanded mine. I'm in 3 counties now. And then those 2 counties, I just know the players. I know the people that work at the offices and I won't work with Pierce County.

And that's, I've seen there's areas of Oklahoma that are really, really, really just hostile towards landlords. There's some markets where there's a ton of houses available for Section 8. So you have a multifamily building, housing authorities is like, well, we could put them in a house for the same price. You do have to understand your market if you're going to do Section 8. There's a lot, it's, it's been overrun by gurus who are online being like, oh yeah, you could buy a house for $20,000 in the middle of nowhere. It's like, you really can't. Yeah, you really can't do that. You can take a bunch of course revenue from millions of people buying your course and buy a lot of $20,000 houses is what you can do. You do have to actually know how to play Section 8. The good news is it's not that complicated. You'll find out within the first, what do you think, Dion, 30 days, whether it is or isn't going to be a reasonable strategy in the county that you're working in.

And I think you do it before you spend a penny. Like you study the market, you look at the rents, you look at the, you do a price-to-rent ratio, you figure out your long-term goals, you figure out the market. Would you want to own in an area? And there's a couple ways to do that. You can call property managers if you're looking at investing into distance. And say, I'm thinking of buying in an area, would you manage if I purchased on these streets? Property managers will tell you, that's great. Like if you're investing in or near Tacoma, Washington, then all the property managers would say, well, if you're within 3 blocks of McKinley Avenue, we will not manage the property for you. We can't send our people there with a SWAT team. Or if you're in Tumwater, Washington, if it's close to 301 T Street, we will not manage it for you. So there's one way is to check with property managers where you want talk about possibly owning rentals there because that means they could make revenue. So they're likely to help you. The second way is to call the non-emergency police number. So not 911, but the non-emergency police number and ask to talk to an officer and say, hey, I'm thinking of moving to the area. You don't want to be a landlord because I was a cop for 8 years. You don't like tenants. Tenants are where all your issues come from. You want to say, I'm thinking of moving to the area. Can you tell me the areas that I should avoid where you can't go alone, where you have to call another officer to go? And they'll give you a list of a couple places. There's a chance you find a department that doesn't like to talk to people, but I've worked in two different departments and we took those calls all the time. So you can actually find out a lot about a market, but you should really be investing where you have trusted boots on the ground already to know that. But for those people who take the classes and they look at, I'm looking at Section 8 at a distance, they don't get as detailed as Millennial Mike. Millennial Mike says, I didn't invest in Gary, Indiana because it was a good market. He says, I invested in Gary, Indiana because I had a friend that owned a bunch of rentals and I watched him for a long time to make sure that he had the trusted boots on the ground and the systems in place. And then he piggybacked on that to pick a market.

It's not about proximity, it's about where do I have a competitive edge, right? It's, it's where can I outcompete? If you have friends and family in an area or a mentor in an area, you now have an advantage. It, you have a built-in advantage in your own market. And Deon's done a great job of you buying areas that are around you that you can drive to and properties that you, you don't have to drive to, but you could touch if you wanted to.

Yeah. So where, where do you have trusted boots on the ground? And for me, that was where I lived. Yep. Could be where you used to live and know the neighborhoods. It could be where you have a friend or family member or somebody that you know that you trust so much you think they're going to come to your funeral, like that level of trust. Yep. Who's also somehow in the industry, another investor, a contractor, somebody like that. Because I guarantee if you called any out-of-state area and you said, I live in California, it's too expensive to invest here. I would like to invest somewhere in name a state, Indiana, Idaho, doesn't matter. They're going to send you deals that look amazing that all the local investors passed on for a long list of reasons. And then you're going to buy it and you're going to wonder why you're losing money. And so yeah, it's a lot more than just finding a market where the numbers make Makes sense.

Yes. There's a lot more to a deal than just the numbers. In my mentorship group, the first thing we do is I'm like, talk to me about the property and the area. Pull up a couple of pictures. I, I, nothing turns off an investor more than when you come in with a, hey, look at these numbers. I'm like, what are we buying? People are 95% sold on whether they're going to invest with you or not. If you're raising capital, Dion doesn't, but if you're bringing in other people and you're presenting a deal and you start with numbers, it's just like, what are we doing? But if you can show me, hey, there's this 25-unit building out here, it's a brick building, gorgeous location, couple of tenant problems. I'm like, okay, I understand the opportunity. I like the building. I want you to show me numbers now that give me a reason to buy this. The psychology is completely different, but a building is more than just numbers. It is a market. It is your— is the things that you know about how the tenants are there, what works. There's different strategies, different marketing. If you're trying to lease up some places, Facebook Marketplace works like magic. Other places, everyone finds it on Zillow. I invest in a lot of towns where you cannot beat a bandit sign in front of a property. People will just call the number on the sign. No amount of technology can beat it. You need to know these things, and if you don't, you're going to buy this property where the numbers do look great and your market could look fantastic, but if you don't know, you don't know.

So today, today's Tuesday while we're recording this. And so I have a livestream at 4:00 and twice a month I do what's called a members call. And so the members on the YouTube channel jump in, we all get on Zoom together and we look at deals. And I can't stress this enough. You have to learn the math, right? You don't practice the math until you get it right. You practice the math until you can't get it wrong. So what we do is in those members calls, we're learning a skill. Where it should take you about 90 seconds to look at a deal and decide, is this just a terrible deal? I dismiss. Is this one that I write down and watch for the next few months? Or is this one that I do a deeper dive in? Because you don't want to spend 30, 40 minutes looking at every single deal or you'd never get through 10 or 20 deals in a day. You have 15, 20 minutes. I want a minute and a half for you to be able to categorize the thing. So the video that we do takes 45 minutes to explain what happens in those 90 seconds. And out of the 45 minutes, maybe 5, 5 minutes is spent on math and it's almost at the end because it does matter. You need to know your market. You can almost look at a price and know your rent ratios and mentally know whether it's going to make sense or not. But we look at it and we go, based on the strategy that you're using, does the parking blow up the deal? Does it have physical aspects of the property that will help limit tenant turnover? What are the economic drivers in the area? What does the flood zone look like for the area? So we go through this long list of reasons that have nothing to do with math that tell you good deal or bad deal. And then at the end, towards the end, we take those 5 minutes and we figure out the math and we go, okay, if it was on the MLS, because that's where I find all my deals, if it was on the MLS and it would make money, it would be sold already. But if it's on the MLS, what number does make sense? How many days on market is it? So we'll then go through the math to figure out, okay, what offer makes sense in terms of any deal into a good deal. And a lot of times the number that turns it into a good deal, because people focus on math so much, makes it a deal that's not going to happen. So we have to find all of the ways to determine is it a good deal or a bad deal, and then use math as one of them. There's probably about 20 aspects to a property. Math is one. And if you talk to most investors, they will literally spend the whole time focusing on your cash-on-cash return. And I have this— have you I think you were at the Robinhood Resort when I gave the education timeline.

Yes.

How people understand real estate and you can tell if they get to cash on cash return, they're in high school. They're not ready to graduate. They're not ready to start making offers yet because they don't understand what makes a good deal is so much more than math.

Cash on cash return for me, again, this just got the only thing that I care about with cash on cash return is that as a capital raiser, that gives me an indication on whether we're going to raises debt or equity. If there's a bunch of upside on a deal, we're probably multiplying their money and not sharing cash flow because there's less cash flow to share. If there's a high cash on cash return, if it's cash flowing 15%, I can make 5% and pay someone 10%. Like that's, that's all that tells me. Cash on cash return doesn't mean anything else to me. I want to buy deals that have good income and I will keep buying deals that pay me money to own them. That is the, that is the metric for me. So it was like increase income on every deal and then repeat all the time. That's worked very well for me. You have to do that very consistently to build an income, but you know, you get to a point where it's like, oh yeah, this gets ridiculous. As long as I stop buying deals that don't do that. That's the only thing cash on cash return is good for. There's other metrics that I think are more helpful. DSCR is a great one because it actually encompasses all of your expenses as opposed to Like, oh yeah, cash on cash return. What if you did 5% down? That's the most you can't apples to apples another deal. It's like, oh, we have nothing down. We're also not making any money.

Like, that's right. That's why I get so cautious with the cash on cash return being the metric used. What if you use a VA loan? Yeah. You make $1 a year. It's an infinite return. You're like, oh, it's amazing deal. It's great. It's fine. Broke the calculator. It doesn't even tell me how good a cash on cash return it is.

It's the best deal ever. I made $12 this year.

Is it worth managing a property and taking all that risk for a dollar?

Right.

And if we had a property manager, yeah, there's just, there's so many things that it comes to that it's not like you can go to YouTube and say, okay, there's a 10-minute video on how to pick a market or pick a property. It takes to get the knowledge that I have to be able to look. I think I've watched thousands of hours of BiggerPockets, One Rental at a Time, Minority Mindset, Graham Stephan, like more than 4 years ago. Yeah.

I was going to say like pre-influencer, pre-influencer status, right?

When he, when he was like, I have 7 rentals in Pasadena, California. Here's how I house hacked. I was like, hey, this is all data that I can use. But I'm, I mean, just to get it down to where the more you know, the more you study, the more this becomes second nature, the quicker you can make a decision. Yeah. Right. And that, and that's the goal is to be able to look at a deal and not think, okay, what am I missing? Because when we're starting out, you, you want to bounce it off so many people to figure out what you're missing because you don't know what you're missing. That Dunning-Kruger effect kicks in. You're like, I understand cash on cash. Did you, did you know that I personally don't want to own rentals in good school districts? And I can give you a couple reasons why. And if you don't know that, if you don't know that there's things to think about more than just the numbers, you'll buy a property that meets the 2% rule, not the 1%, right? It meets the 2% rule, but it's in a war zone. Your handyman gets robbed every time they go there to fix anything. Your tenants turn over every couple of weeks. Becomes the local flop house. Math doesn't tell you that. All the other things that help you pick a market tells you that. Quick gear change.

Too long of a pause there. Now my team knows there's a soundbite. Editors, trim down that pause. Is there one thing that has been unusually expensive for you to learn? You've done this over 12 years. You've done a lot of things right, and you've had a strategy that has a lot of like very, very controlled measured variables. You did a great job of building this in an unbelievably sustainable way. Is there something that stands out where you're like, boy, this was an expensive stupid tax before I figured out what it is I didn't know? When you don't know what you don't know, it can be very expensive. Is there one thing that stands out as the stupid tax of Damn it, if I knew this.

I'm a little disappointed that you called it the stupid tax because I was going to show you what a fan I am because I watch your content. I was going to call it the stupid tax. And this is the thing I think that costs me the most and it costs most people that I meet and interact with. And I meet people somewhere through their investing journey and then try to make the future better. I can't go back, fix their mistakes, but from this point on, I can let people know. I've had to grab people by the shoulders virtually through Zoom, right? Just grab 'em and say, here's the mistake you're making. When I was renting my house out and I moved into the apartment, I was dipping my toes into being a landlord, right? So mentally I wasn't a real landlord yet, and a real landlord would have a lease, advertise their property, have a team, have handymen, have their contractors in a list of numbers to call. But since I wasn't a real landlord, I was like, Well, I don't want to rent to a stranger. Who can trust a stranger? So I'm going to rent to a friend. Since I'm renting to a friend, it would be really weird to have a lease between me and a friend. That would be stupid because I'm not a real landlord. So then I'm a single parent. He was a single parent. So when rent started to be late, I thought, okay, well, I understand life happens to single parents sometimes. And so late became never. When I went to the house to talk to him, here's my stupid tax, he didn't live there. He had moved out and rented the house to someone else and was collecting rent, but not paying me. Trashed the place, built a wall halfway at the top of stairs, not to code. So my first year of owning a rental, when I moved into the apartment and rented out the house, I lost $6,000. Luckily, and I lost it, the $6,000 was not the problem, right? I could, most of us can handle losing $6,000 and just think, okay, this investing class is not for me. But for me, it was the emotional hit of, If a friend will do this to you, how can anyone rent to a stranger when it's literally the opposite? Yeah. Unless you know someone, the more they're going to stick to a lease. Like you don't want to be friends with your tenants. You don't want to get to know them. That's where the, hey, you're my friend, it's Christmas time, rent can be late, right? No, you want strangers that you have a lease. The lease is there to protect them. You can't turn off the power, you can't take the doors off, you can't be retaliatory. You can't— an eviction takes a certain amount of time. You can't raise the rent unless you're doing it at a certain time. There's all these protections for them, but people forget the lease protects you too. There's late fees. I can do an eviction. You can't move in other people. You can't have 15 cars parked on the lawn, right? All these things that are in your lease. So here's the stupid tax that I would hope to just grab people by the shoulders and say, if you're a new investor, and you're— you've just started saving, you're working on your credit score, you're looking at finding owners of properties to work out deals with or whatever. Today, right now, while you're watching this video, I'm giving you permission to be a landlord. There's nothing that's going to happen in your future that magically flips a switch and now you're a landlord. Today you find leases. Today you go and you talk to an attorney. I personally would retain an attorney, have them look at your lease and say, What would you add? Just in case we ever go through an eviction together, I want your job to be easier. They know what will work in your local court system. Build a list of the plumbers in your area that have 24-hour-a-day, 7-day-a-week emergency service. Build a list of electricians in your market that have— doesn't have to be 24-hour-a-day, but 7-day-a-week emergency service. Go on Thumbtack. Get familiar with how would I put a job on here for repairing a fence? How would I put a job on here for swapping out a water heater? It's how you find contractors. Find a local real estate meetup group. What, what do real landlords do? Do that. Don't think you're waiting for permission to be a landlord because you've got it today.

Oh dude, what an epic note to end on. I had, I had follow-up thoughts and I'm like, no, no, no. That is the end. That is the final thought. That is perfect. You do not need permission to be an investor, but if you did, you now have it from Dion. You have it from me. And there's only one way to become a real estate investor. It is to invest in a piece of real estate. And once you do that, be a landlord. Don't just cut corners, lease to friends. I can go on for days on why you also should not partner or borrow from friends and family. Just be a landlord, run your business. It's going to be much, much easier. A lot of people have done it before you do it the way they are. If you don't know how to do it, go to a meetup, meet other owners, get around the people and ask them how they structure their business. Or ask a question on Deon's channel, Deon Talk Financial Freedom on YouTube. He is super responsive and he's going to be live the day that we're recording this. I don't know when I'm watching this, probably on a Friday, but he goes live every Tuesday at 4 Pacific. Be there, ask a question, learn how to be a landlord. Deon, thanks for sharing with us today. This was awesome having you on. I had been way overdue, way overdue.

No, I appreciate the invite and I know this video's going to help somebody watching. But I look forward to these videos just because now that you've moved to Texas and don't live right down the street anymore, I get to hang out with you.

It's cool. I am, uh, I am going to definitely hang out with you again, and I'm sure we'll do more Robinhood events together. Dion's one of my favorite speakers at, uh, I believe you're the only one who's been to every event. You and Mike have been every event that we've hosted, but huge privilege to have a friend on. Love what you shared today. So many takeaways. If you guys haven't yet, like and follow his channel, and we'll see you all in the next episode.