How Much One “Ordinary” Rental Property Has Made Me in the Last 6 Years

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2:39Real estate investors love to talk about things like cash flow or appreciation, but they rarely talk about the total impact that a single property has on your net worth. You may generate a little bit of cash flow from real estate investments in year one, but the real power comes from buying a great asset, holding it, and letting it run its course. And when you actually do the math on a property you've owned for 5, 10, or 20 years, the results are eye-opening. Every one ordinary rental property can create hundreds of thousands of dollars in wealth. Today, Dave and I are breaking down a couple of properties from our own portfolios to prove that point.

3:16These are actual deals that we own and manage, and we're going to share all the real numbers. Are there bumps in the road? Of course, as you're about to hear, you can overpay for a property. Renovations can go over budget, but real estate is far more forgiving than you think. If you buy a good asset, play the long game and stay patient.

3:42Henry Washington:Hey, everyone. Welcome to the BiggerPockets podcast. I'm Dave Meyer, joined by my friend and co-host, Henry Washington. Henry, what's up, man? What's going on, buddy? Good to be here. Yeah, it's going to be a good show. We're doing something a little bit different today, and I'm excited to talk about it because we often discuss acquisitions, buying new properties. We debate the benefits of cash flow versus appreciation, but we don't always talk about what might be the most important thing in real estate, which is sort of the cumulative benefit of real estate and how a single property contributes to your portfolio, to your net worth, to your financial freedom mission over time.

4:26Henry Washington:So that's actually what we're going to be doing today. Henry and I have each wrote down some information about a single deal that each of us has done in the past. And we're gonna talk about the ways that a single deal evolves and changes and grows over time. And I think this is gonna help everyone, not just help manage their individual properties and the things they already own, but going back to the acquisition phase, help people pick which deals they should be buying today to maximize that benefit and advantage over time. Yeah, this is super fun because when you study real estate, like online, social media, books, podcasts, all of it, it's all talking about what it's like to purchase property, what it's like to disposition property.

5:16And there's like tips and tricks for operations, but you never really hear like the details of how an individual property is performing over time in someone's portfolio. It's like this missing link of real estate study.

5:31Henry Washington:Yeah. People are like, oh, I bought it for X and then I sold it for Y, but they never tell you what happened in between. And although sometimes those equity numbers are real and they are impressive, it's not the only benefit. Or in between buying it for 100 and selling it for 300, you put 400 into it and you didn't actually make any money. So we're going to go into it. And I picked what I think has been sort of an average deal for me over time. It did well. It's not the best deal I've ever done. It's not the worst deal I've ever done. But sort of just representative of a deal that I think works for people.

6:04Henry Washington:But let's do yours first. Tell us about what deal you're bringing. So I bring this property up because it had a lot of hiccups, but I've held on through them. And I'm glad I have. It's an amazing property. So this is an eight unit property that I bought. I closed on it, I believe, January 2nd or 3rd of 2020. So this was literally as the pandemic was becoming a thing. Right before toilet paper weekend. Yes. Everyone was freaking out. When people were wearing like grocery bags over their heads, tucked into their clothes, going to the grocery store. When no one knew what was happening. When it was really, really scary still.

6:44What a crazy time to close on a property. And my biggest project to date. So I paid$500 ,000 for this eight unit property. It's across the street from the University of Arkansas. So it is a fantastic location, but it needed quite a bit of work. And I made the classic newish investor mistake of underestimating what the rehab was going to take. So given normal times, I underestimated that rehab. But if you remember what happened during that time was it started to get really hard to find anybody that wanted to go outside and do any work. and the cost of materials and labor went through the roof. So I think I budgeted somewhere around$100 ,000 for the renovation of this property.

7:32And we probably ended up spending closer to$250 ,000. Whoa. Yeah.

7:37Henry Washington:And you bought it for$500 ,000, yes. Well, that's a good buy. Eight units for$500 ,000. Yeah, I mean,$60 ,000-something a unit. I imagine even in your area, that's pretty darn cheap. Phenomenal buy, especially for the location. And so performance-wise, up front, I mean, this property ate my lunch because we blew through that$100 ,000 pretty quick. How did you finance that? Like, how did you, you know what I mean? If you're budgeting for$100 ,000, how do you get the other$150 ,000? We did a commercial loan from a local bank. It was a commercial construction loan. So they gave me 90 % of purchase and$100 ,000 for renovation.

8:21So they gave me 100 % of the renovation costs. I had to put down 10%. So I had to put down$50 ,000. And then we actually got the seller to carry that back on a note for a couple of years. So we paid him 10 % interest on that seller carry back of the down payment for two years while I was renovating.

8:42Henry Washington:So I didn't have to come out of pocket any money to buy this property. But wait, when it went from 100 to 250, where'd you get the extra 150? Yeah, great question. So about$50 ,000 of that came out of my pocket, maybe a little more. And then the remaining, we were able to tap into the equity because the equity bump that we got during the pandemic years was good enough for us to tap into some of that equity and pull out the rest that we needed. And so the bank essentially gave us a little more on our line of credit to finish up the renovation. Still not looking good for you right now. No. If you're following along, if you're betting on this one.

9:19No, it's not great. at this point.

9:21Henry Washington:Your poly market odds are very bad. We're carrying the note during all this time, right? We're renovating. There's nobody living there because we had to essentially put everyone out. Everybody either left and the one or two people that stayed were problem tenants who weren't really paying anyway. And so we had a completely vacant property that we were renovating. I was carrying the note on it. Those were dark days. Those were dark, dark. days. And so when I bought the property, rents were at about between$300 and$500 a unit. That's how not great these units were. These people were just slumlording it on this property.

10:02And we were able to start getting renovated units leased at between$1 ,000 and$1 ,200. Wow.

10:10Henry Washington:How big were they? Two bedroom? 800 square feet, two bedroom, one bath. I imagine you get that from a college student all day. All day long, we were able to get these rented. We also added laundry to each unit, which helped boost the rent and helped boost desirability. And so once we got that first unit online and saw how quickly we got it rented, we knew we were going to be okay, but it was a long ride to get there. And I want to point that out for people because real estate is truly a long game. Like when you hear me talk about this property, it sounds great. Yeah, I bought it. I paid$500 ,000.

10:45owner finance on the down payment. I didn't have to put any money out of pocket. And then we renovated it and we're renting the units for$1 ,000 to$1 ,200 a unit, right? That sounds amazing.

10:55Henry Washington:But - I mean, you went into the red for a while, it sounds like. For several months during the renovation. And even then, your cashflow is still good, but you probably couldn't have sold it for a profit, even though the equity was probably pretty good just with transaction costs and paying off your debt. It just takes time. You have to let the thing run its course. It takes time. And I think the thing that people don't talk about with real estate is that, yes, I was able to carry that property. But what carried that property? Money from flips and cash flow from my other cash flowing rental properties, right?

11:30Cash flow is great, but you can't always rely on it, right? If I was relying to live off of my cash flow, I might not have been able to sustain holding this property through the downtime we had of having to take everybody out. And the renovation, not only was my budget more than doubled, but my timeline went longer because of the state of the country at the time. And there was literally nothing I can do about that. There was very few people that were working at that time. And so that's why we say you have to have some other sort of income stream. Just because you bought a great deal doesn't mean you're going to be able to hold on to it.

12:08My other assets in my portfolio are what kept me afloat with this property. And I'm glad that it did because we talk about real estate being the long game. So now we've got eight renovated units. They are renting very well. And we did an appraisal recently as I was refinancing this property. This property appraised for$1.4 million. So not only is it cash flowing great now, but it's got a crap ton of equity in it because of the location that we bought it in because of the appreciation in this market in general and that's the paper appraisal my agent said that i should be able to sell this for 1.5 to 1.7 all day so and how much debt is on it

12:53Henry Washington:seven hundred and twenty thousand dollars okay so you're walking with hate after sales expenses Yeah, it's amazing. And the cash flow is decent. My note on this property, principal and interest run me somewhere around$6 ,200 a month. And we're bringing in over 10 in net cash flow. And, you know, obviously it'll depend. So there's four units that we did a lighter renovation on and four units that we did a complete gut overhaul on. So the complete gut ones, they get 12, 13, 14, depending on what we can get for it at that time. and the ones with the lighter renovation get anywhere between nine to 11.

13:32So we're above 10 grand in gross rents paying about 6 ,200. You know, you take some expenses. It's not a crap ton of cashflow, but it's still positive cashflow and crazy appreciation. Yeah.

13:45Henry Washington:So what are you going to do with it now? I'm going to keep this one forever. Yeah. I love the location. I'd love to be able to give it to my kids. There's going to have to be some other maintenance items I'll have to do big ticket. That parking lot in the back will have to be redone at some point. It's an asphalt parking lot and it's wearing down. So I'd like to come back with something a little more durable, maybe do some concrete back there. It's going to be quite a big capital expense on that property. Some of the HVACs are getting older that we'll have to replace soon. But in terms of location and appreciation and rent growth, you couldn't be in a better location.

14:23Henry Washington:So rents are still growing? You think the cash flow will get better over time? The cash flow will get better over time, especially as I start to pay this unit off. But this is one I plan on keeping in the fold for a long time. So I mean, yeah, the strategy, which I like, is you have a great assets and it's appreciated. Maybe it's not a great cash cow, but if it's in a great location, it rents well. That's like a prime property to pay off over time, whether you do it quickly or just wait 15 years. That's just one to hold on to. Yeah, absolutely. The longer I hold it, the more valuable the land and the asset is going to get just because what's around it.

15:00The University of Arkansas has grown since I bought this property. So it's like they're inching the campus closer to me. So it's, I'll take it. Even better.

15:11Henry Washington:Right. This isn't some crazy thing. You just bought a good asset at a really good price, renovated it, made it more desirable for your tenants, increased the occupancy and the rents and that's it. That's just the formula, but it just takes time. It doesn't work in the first year or the second year. It sounds like you weren't trying to pull off a perfect burr and refinance 100 % of your money in like nine months. It was just like a patient approach. You found a great asset. You figured out what was going to work with this particular property and didn't try and force anything out of it that wasn't going to be realistic.

15:50Yeah. I think part of the key here is I didn't use short-term financing in the terms of like hard money, right? So my interest rate was very reasonable and the construction period. So I had a 12 month construction period where I'm paying interest only. Like that allowed me to keep my holding costs lower than if having to pay principal and interest during a time when it was very hard for me to get this thing up and running due to underestimating the rehab and then the situation that was happening in the country with the pandemic at the time.

16:23Henry Washington:So yes, this is a very run-of-the-mill real estate deal. Buy a dilapidated asset, add value to it, and rent it out. But I don't think people often understand that sometimes that doesn't go smoothly. If you don't want to lose the money you have in the asset, you've got to be able to hold. And had I not had other cash flowing assets and had a stream of income through flipping. Plus I had my day job for part of this. All of those things allowed me to sustain and carry that property through it bringing in absolutely no income. All right. Well, this is a great example that everyone can repeat. You don't have to go out and buy a commercial property, but like what Henry did, buying an undervalued asset, fixing it up, renting it out, getting appreciation, using it to finance other deals.

17:11Henry Washington:this is the benefits of holding on to real estate for a long time. And we got to take a quick break. But after the break, I'll share with you an example I have very different approach, very different property, but that still showcases how the long game usually wins in real estate. Stick with us. We'll be right back.

17:33All right, we are back on the BiggerPockets podcast, And Dave and I are talking about properties that we currently own and giving you essentially some behind the scenes on what it's been like for us to own and operate these properties and what it has done for our portfolios having owned and operating these properties. So I'm very interested to hear what kind of property you brought for us, Dave.

17:58Henry Washington:I have like the total opposite end of the spectrum. Just a single family home that I lived in for a couple of years. So it's not a traditional house hack or what most people think of as a house hack where I was renting out one unit and living in the other. My girlfriend at the time, wife now, and I lived in this home for three years. Did you call it a house hack because you charged her rent? I did a little bit.

18:26Henry Washington:I covered the vast majority of it, but a little bit, yeah. Well played, sir. So I bought this house, single family home, back in 2016 when I was living in Denver. It was actually right after I started working at BiggerPockets. I got this under contract, I think, maybe within a month of working at BiggerPockets because I remember sneaking out of the office to go cold call someone because I wanted to get this house. Oh, this is your one cold call that you've ever made. This is my one direct-to-seller deal I have ever done. But let me just tell you about why I went out of my comfort zone and did this.

19:03Henry Washington:I got really into the idea of like path of progress and figuring out what neighborhoods were going to be popular in Denver because it was growing a lot, but it was very neighborhood by neighborhood. And the city announced that they were going to be building a brand new light rail that went from downtown Denver at this train station that they were pouring millions of dollars into out to the airport. That was like always this big pain point. And it was going to go through this neighborhood that was like kind of up and coming. And they were deciding between two different projects. The one route might go north, one route goes south.

19:34Henry Washington:So my agent and I went or he first went to the city planning meeting and figured out that regardless of which one they chose, there was like this one sweet spot that they were going to get this park and a train station and the city was going to be investing in it. And I was like, I got to buy right there. And so I actually had been in this house like six months earlier and thought it was too expensive at$425. and knowing what I knew now, I was like, all right, I'm going to call that guy back. And so I called him back and was like, I was in your house. He didn't sell it because it was too expensive at$475.

20:11Henry Washington:And we finally negotiated for it. And I remember to this day, the exact price that was$462 ,000 is what we agreed on. So more than I thought it was worth. But I was like, this is crazy because that is the exact price. $462 ,000 was the exact same price I had paid six years earlier for a four unit in Denver. And now I was paying that for a single family home. And I was like, this is crazy, but I really believe in it. And so I wound out buying this and I'll tell you how much it's worth and what it's done for that, but was able to finance it just using money I had saved up and refining a deal I had bought like two and a half years earlier, had done some value add to that and had raised the rents a lot.

20:56Henry Washington:So I was able to refi that to go out and buy this. $462 for a single family even back then. Wow. Wow. That's a lot. That's a lot. So I assume you did just like a conventional loan on this one? I did, yeah. Owner-occupied loan. I actually wound up putting 20 % down on this. I had saved up enough for 5%, but I did a refi and was able to put the full 20 % down. So I got good financing because I really didn't want to pay PMI. And I think my loan then was five and a half. I refinanced it during COVID, but it wasn't like crazy low rates back then. So even that, I think my mortgage payment was something around like$1 ,800,$1 ,900 to live there.