He’s Making Over $100K/Year Cash Flow with Small, Affordable Rental Properties

0:00When Nathan Nicholson cashed in his 401k to start buying real estate, people told him he would fail. They said he'd lose everything. But today, he owns 23 rental properties, generating more than$100 ,000 in annual cash flow. Nathan was 33 and the top salesperson at his company. But years of top performance still left him with only$30 ,000 in his savings account, hardly enough to dream about retirement. So Nathan liquidated his retirement fund, and he started buying rental properties in his hometown of Louisville, Kentucky. They were little brick houses, most of them under 100 grand. That was 13 years ago.

0:42Now, Nathan generates six figures every year after all his bills are paid and his financial future is secure. It's a simple formula. Buy the smallest house possible, fix it up, and watch the monthly rent checks roll in. Nathan's approach is so boring that he actually calls himself the tortoise. But don't let that confuse you. This strategy absolutely works. And today, he's sharing his exact repeatable formula. The one rule he never breaks, how he's managed to pay off 10 properties even as he scales, and how he's pivoted his strategy for 2026.

1:25What's up, everyone? I'm Dave Meyer, Chief Investment Officer at BiggerPockets. Thank you all for being here. We got a great show for you today. We're bringing on Nathan Nicholson, who is one of the most popular BiggerPockets guests in 2025. You can hear his full story by going back and listening to episode 1132 from last June. But today, he's back with an update, what he's been up to, how he's pivoting to make the most of current market conditions. So let's bring on Nathan. Nathan, welcome back to the BiggerPockets podcast. Great to have you here. Yeah, thank you for having me. Some of our audience may not have listened to your first appearance here on the show.

2:05So maybe just give us a little bit of background about yourself and your investing career. Yeah, my investing career, I mean, from the prior podcast, it was how to basically make money with$100 ,000 or less rentals, in all honesty with you. And so realistically, my beginnings kind of happened with me really just realizing I have to do something different at the age of 33, being a top salesperson and only having about 30 grand in my checking account. Go, man, if I'm really good at sales, why don't I get$30 ,000 in my checking account? And going, what can I do? And I had a couple of friends of mine basically talk about real estate investing and what they were doing.

2:39And so I sold my 401k off, took every penny I had, had a dream to say the least and put all my money into real estate at that time and just kind of been doing it ever since. So that's been about 13 to 14 years at this point. Tell us a little bit about what your portfolio looks like here today. Yeah, I mean, from the last time we spoke, it's grown a little bit. I'm sitting at 23 properties, all single family residence at this point and about to pay off my 11th house. So I've got 10 free and clear. And I just literally sent the wire on Friday. So I'm paying off a little two-bedroom house that will net me about$600 a month.

3:15But beyond that, I mean, as far as my breakdown, my rents have gone up. My total cash flow has been going up because I've been trying to sureify my property business. But my rents are at about$311 ,000 right now. Total cash flow, that total in is$143 ,000. And my true net, which is what I go by, I don't say cash flow. I'll go by true net. True net is$112 ,000 right now. I think the last time we spoke, it was about 100. Is it fair to say then that you reinvest 100 % of your cash flow back into some sort of business, even if it's not for acquisition of your next rental? 100%, yeah. Is that hard for you?

3:52Do you ever get tempted to just live off of it or you're still in growth mode? I mean, I'm the tortoise investor, right? I'm very conservative. So to your point, I've thought about it. I'm 46 years old. I would love to retire at 55. I mean, I could probably retire now, but at the same time, it's one of those things where it's like, I haven't really accomplished really what I want to do yet. I think most investors will tell you the same thing. It's like, I have not reached that spot and that spot is coming. But yes, that's what I'm going towards. But at 55, I think I'll be there. I really want to be at 30 doors and have about 20 of them paid off before I really go full on real estate.

4:31And that's at about 55 for me. Okay. I love the goal. It seems very achievable and you're well on your way. Maybe before we talk about just what you've been up to recently, you can remind everyone how you got here because this is where most people want to get to. 10 paid off rentals, incredible, nine grand a month in cash flow. Amazing. What was the primary strategy you used to get your portfolio to this size? Being really safe is the best way to put it. I took a little bit of leverage in the very beginning. I took quite a bit of risk. I cashed out my 401k. A lot of people would tell you not to do it, but if you don't have any money, it's the only thing that you could use.

5:09You might as well do it because it's the only thing you got available. And that's what I did. And it was very risky. And a lot of people told me that I would fail. I mean, it's weird how your friends and people around you will say, you're going to fail. You're going to lose everything. But in situations like this, if you believe in yourself, it really does help. And I mean, 13 years, 14 years ago, that was the catalyst. It was a dream in that and me cashing that 401k out and just playing it very conservative. I mean, I'm a tortoise. I mean, you'll hear people use this terminology, turtle or the hare.

5:39I literally will not move forward unless I have cash flow to cover my expenses. And so I've really stayed true to that. And so that goes back to the first property. If you only make$300 a month, well, that's$3 ,600 a year. What do I do with that? and you leverage it to 7 ,200 to 11 ,000 to 12 ,000 to 15 ,000, you keep slowly pushing that forward. And that's very beneficial. But that's why I've been able to do this at the rate that I have and actually have 10 to 11 paid off properties is because of following that same process. I love the philosophy. Subscribe to the same one myself. You know, it sounds patient and slow.

6:15And you're talking, you're saying all the things I agree with, that you should be slow and just take your time with it. but it's really not that slow. Like you said, you've been doing this for 13 or 14 years going from where you were, which sounds like not necessarily terrible place financially, but not where you wanted to be and not having the level of savings that you wanted, not having the nest egg that you wanted to being pretty darn close to financially free. If you kind of wanted to go in that direction in 12, 13 years, like that's incredible. It takes most people - That's very fast actually.

6:5040 years plus to do that, if you do it at all. So many people never accomplish that. So I think what we're saying is patient and real estate is still faster than almost any other avenue to pursue this kind of financial security. Agreed fully. Nate, tell us a little bit about how you did the financing, because you said you started with 401k. You know, you cash that out. You can't buy 22 properties in that. So were you just saving in between acquisitions and reinvesting cash flow? Was there something more you were doing? In the 401k, I started buying the houses with cash up front because my concept was a domino effect.

7:26I wanted the dominoes to fall in a way that made me more money. And also like a cat with a laser pointer, I wanted to have a toy to play with because I didn't know what I was doing. I literally did not know. And so the best course of action was to pay off my first house. And it was an And then once I started running out of that cash, I started putting 20 % down. I was doing renovation loans. Those are 203Ks in the mortgage world. A lot of people use those. And that helped me out with a couple of them at the very beginning. But then what I realized real quick was I wanted to have a better kind of loan set.

8:04And so I started doing single family residence and using my personal credit and putting 20 % down. So I'm a staunch proponent of 20 % down. It's almost one of the only ways you can cash flow a property properly right now is with 20%, unless you get a really good deal on a bird deal that you're doing. You've never gone and raised outside capital. You've just figured out a way to do it with a W-2 income, saving, and relationships with banks. You were able to just, over 13 years, build a very impressive portfolio, sort of the old-fashioned way? The old-fashioned way. Yeah, correct. And I know a lot of people that do raise capital and that's a very good way to go about it.

8:47Right. That's your lending structure. But what I what I figured out is you have to be a cash buyer to get these houses these days. And so my whole motivation, once I figured that out, was to pay my properties off as fast as I could, because, you know, unlike a HELOC or a line of credit on a personal house, you know, you could put it on your home and use it to buy houses. right and have that liquid. But you can also get business lines of credit. And that's kind of my focus of what I've done. So every time I pay a property off, I refinance it and put it on my line. It has zero money on it, but my line of credit might increase like this property I'm about to pay off.

9:23I'll get another extra$100 ,000 on my line of credit. And then I have a million dollars in a line of credit on 10 properties individually in the line. And I could use that to buy houses as my own bank, technically. That's how I got around crowdfunding is literally doing it that way, slow and steady, but you can absolutely do that if you just take your time. We got to take a quick break, but when we come back, Nathan, I'd love to talk to you more about what you're up to today and how you're making deals and your portfolio grow, even during these challenging market conditions. Stick with us. We'll be right back.

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14:59Welcome back to the BiggerPockets podcast. I'm here with investor Nathan Nicholson talking about his impressive career he's built in Louisville, Kentucky over the last 13, 14 years. Now, we've alluded to it a few times. Everyone here listening to it knows it. The market has changed. It's different. And so tell us a little bit about your approach here in 2026. The first thing I would tell you is I only really focus on a 1.3 DSCR now. And that is the very true number. That's kind of your new 1 % rule is the best way to put it. A 1 % is usually a break even. 1.3, you're going to make a couple hundred dollars off of it a month.

15:37And for everyone listening, if you're not familiar with the acronym, DSCR stands for Debt Service Coverage Ratio. It measures your debt service, basically what you're paying to your loan company every month versus your income. Different investors have different targets, but it sounds like, Nate, yours is a 1.3. Some banks will land on different ratios, 1.1. sometimes 1.2. Nate looks for 1.3. If you're interested in getting a DSCR loan, there's all sorts of benefits to it. You don't have the same level of underwriting. Sometimes it can be a lot quicker. If you don't have a W-2 income, you don't have necessarily the credit that most banks are looking for.

16:15These are loans that are underwritten like commercial loans, but are specifically designed for people like us, right? These are loan products created for our kinds of investors. If you are a pro member, we do have discounts on DSCR loans. You can go check those out from Kiavi at biggerpockets.com slash pro. Go check those out. But so, Nate, 1.3, right? So that's your number. That's getting you cash flow in Louisville. You finding 1.3 deals in Louisville right now? Not really. Even though you're not finding it, you're holding the line at 1.3, right? That's correct. So you're not buying it still unless it's the 1.3.

16:53that's the way you got to do it. Yeah, you don't want to lose money. And so a lot of people will tell you appreciation is an approach. And it is it really is. I mean, you could get a 1 % rule house break even on it, it could have, you know, low capex because it has new features, right? If you're doing a burr, whatever that you're doing, you know, new floors, whatever. But at the same time, if you're barely making it, and you have a, you know, I had a house, a rat house, I call it the rat house, it cost me$27 ,000 to repair this house. So a normal person wouldn't be able to absorb that. That's a huge hit.

17:23And without cashflow, I would have been hurt or anyone else would have been hurt. So yeah, the 1.3 rule is really steadfast in my mind because that's what's gotten me here. I've really followed this approach from day one. But the other thing is the creative finance angle is some people like sub two. I personally am not a sub two person. I know a lot of people that have a lot of positive things that have happened to them by doing sub two. I personally like owner financing on free and clear properties. I like doing the tricks that I just gave you with commercial financing. I like these little tricks because I'm in control.

17:55That is the one thing. Sub two, you don't always have control. The ways that I'm telling you, you have control. Your name's on the personal guarantee. You own the property, stuff of that nature. This makes sense to me. First of all, your affinity to seller financing over sub two makes sense to me, given you're just what you've told me a little bit about your risk tolerance. Yeah, exactly. I am not a sub two expert, but there is some gray areas in sub two that add risk. And it might be right for some people, presuming that's done ethically and legally. There still are some gray areas. And those are things that you need to consider.

18:33That is correct. When you do seller finance, if someone owns a property outright and they're writing your loan, like that is very low risk, very high upside, in my opinion. And although they're not the easiest to find, they're out there. Like I hear investors doing them all the time. So are you just acquiring those the same way you would do a wholesale? You're just you're doing direct to seller marketing. You're sending postcards. You're building websites. And that's why, as you said, getting in front of the deal. Well, you're trying to eliminate all the middlemen is essentially what you're saying.

19:06Because I've worked with wholesalers. I have nothing against wholesalers, but they're charging a fee for their service as they should. It's a business. And I'm paying that fee. So I don't get the best possible price on that property because me, Dave Meyer, I am not willing to do the direct to seller marketing. I just don't do it. But you are saying by doing this direct to seller marketing, you're getting 10 grand off every single deal, which is hugely appealing. So maybe, you know, Henry talks about a lot on the show, but like what amount of effort does it take you to do this direct to seller marketing?

19:40And what amount of money does it take you to do this direct to seller marketing? You know, I don't spend a lot on the marketing. It's more for material like postcards, you know, getting lists created, stuff like that, AI to generate lists. And a lot of that stuff you can do very semi-cheaply. I mean, postcards, I just put an order in for 500 postcards and they're very niche, very specific. I designed them myself. I do a lot of the work myself, actually, is the answer. And so I design my postcards. I put all the effort into it. I make the calls. I mail them out. I pay for the stamps. But in regard, the only other effort that's there is disposition.

20:17It's really just getting the information, calling the lead, having them call you, introduce yourself, and then handing them off to a partner that can do disposition. So really my focus is on less external effort because I'm a growth manager for a large company and I'm very busy doing that. And also the fact of risk. Flipping would make more money, but it's risky currently. And wholesaling is actually less risky than flipping currently. It is. And it also gives me the time with my kids because I have two very small kids that are in travel sports. And if anyone knows anything about travel sports, oh, my God, that's taking all your time.

20:53Yeah, that's right. So just to prove that, I mean, Nathan's telling us that this is possible. Like if you want to go out and get the best possible prices, these are things that you can absolutely do. We're not going to get too much into the tactics here today, but we have tons of great episodes. Nathan obviously has some good advice. We had a recent episode with Andy Gill, who was talking about this. Henry talks about it all the time, but this is just a way that you can absolutely get good deals right now in this current market. It's absolutely something that you should consider. Absolutely. Nathan, one last question on this.

21:24Have you bought anything recently? Yeah, yeah. So there's two deals. One of them was a property that I got in late fall. And it was the property I was referring to a little bit earlier. It was a four-bedroom house. Realtor was trying to sell it,$125 ,000. I already had the drive-by done on this property. And I purchased it. And anyway, it appraised for about$170 ,000,$175 ,000, which allowed me to immediately. Oh, my God. I purchased it with no money out of pocket, you know? So you're just walking into like 50 grand in equity on that? Yeah. Yeah. Like almost 25 ,000. Yeah. Right out the gate. And it didn't make any money due to the current rent with the tenant.

22:00But in the last six months, I have raised the rent twice. That's very not normal. Right. But I had to start making money on this property. I was losing about$100 a month and he was paying 800 and now he's at$1 ,400. So now I'm making about$400 net a month after expenses in a period of six months with no money out of pocket. Is that$1 ,400 like what market rent should be? So actually it's lower than market rent. And I'm trying to help the family out. I met them when I walked the house and everything and they're good people and they maintain the house. So I told them$1 ,400 was$200 less than what he would spend anywhere else.

22:34And he agreed. And so I left him there and I didn't want to lose him. He's a good, hardworking guy and I didn't want to disrupt his family. But I did let him know that, you know, obviously this is the pro and the con of being an investor. I let him know I have to make money and this is where I need it to be. And he was able to do that. So it worked out. So clearly you figured this out and these are repeatable things. These are things that really everyone listening to this podcast can go out there and do. Now, Nathan, you mentioned you're not just looking for new deals. You're also trying to optimize your business and to make more out of what you already have, which is the name of the game right now.

23:10I mean, I always want to go out and buy more, But there's so many things going on in the market that make it increasingly important to pay attention to your operations. What are some of the strategies and tactics you're using to better your performance of the stuff you already got? Sure enough, the business is, I would say, one of the top priorities that I had this year and on my board behind me is making sure that my business is running efficiently and that I can maximize cash flow. because again, I'm trying to find ways to scale and build. So to your point, I mean, if my rents are$311 ,000 right now, and my net cashflow is 112, well, the math that I did based on these four things that I'm going to tell you that I'm doing to kind of short my business will increase my cashflow by almost 30 to$40 ,000.

23:59That's not a small number. I mean, that's a lot of money. I mean, like if you think of it that way, that's the equivalent of buying, you know, five, eight more houses, right? Like everyone's focused on acquisitions. Like, you know, just make your existing stuff do better. And you don't have to take on as much work or figure out the financing or go out and find the deals. So I see the motivation there, 30, 40. I get it. How are you doing it? You know, there's four things that I've really been trying to focus on right now. And it was property management, right? Trying to figure out a way to get my costs lower, which at the time I was paying 12%.