I Bought 3 Rentals Then Ran Out of Money…Now I Have 50 Units

0:00This investor acquired 50 units and only put 1 % down all since 2021. No tricks, no scams, not even extreme leverage. Just a lot of hustle to find the right deals and the courage to seek out partnerships within her network. Stick around to hear how she went from a demanding job running a makeup salon onto the path towards early retirement.

0:27Hey, everyone. I'm Dave Meyer. I've been investing in rental properties for 15 years now, and I am the head of real estate investing here at BiggerPockets. Our guest on the show today is investor Jesse Dillon. Jesse lives in Massachusetts and had a hands-on day job owning a small business in 2021 when she discovered real estate investing. And now, less than five years later, she's completely transformed her financial future with a portfolio of only seven properties. In this episode, Jessie will tell us how sending a few awkward text messages completely changed her investing trajectory, why her partners are excited to bring all the necessary cash to acquire new properties, and why she's now pivoting back to cash flow after accomplishing her biggest investing goal.

1:14This is a truly inspiring story that really emphasizes the power of finding like-minded people you might already know within your own network. Let's bring on Jessie to hear how she does it. Jessie, welcome to the BiggerPockets podcast. Thank you for being here. Yes, thank you for having me. I'm excited to have this conversation with you. Start by telling us a little bit about yourself and where were you in life when you first started thinking about real estate investing? So I'm Jessie Dillon. I live in central Massachusetts. Half of my time I spend in real estate and the other half I spend working in and operating my permanent makeup studio.

1:55So going back to 2020, when I was forced to close for a couple months in the studio, I realized how burnt out I was. And that sort of sent me down the path of figuring out how do people retire. And a Facebook clickbait article actually led me to an Instagram account of a girl who was set to retire at 26. So I'm like, I got to figure out what she's doing. And I messaged her and I told her all about my situation and how inspiring her article was. And I was like, if you could recommend one book, what would it be? And she said, The Simple Path to Wealth. So I read that, loved it, went crazy investing in index funds.

2:37I was investing 70 % of my income. and then I realized that was still going to take me 11 years of going that hard to retire that way and I was like there's no way I can keep this up for 11 years and one podcast led to the next and someone was talking about real estate and the guy who was talking started off by saying you don't have to have family in real estate you don't have to already be wealthy you don't have to be a certain age and all of these things were mind-blowing to me because I like everyone else thought that real estate investing was for a specific group of people that I wasn't a part of because I didn't have experience.

3:14I didn't really have a whole lot of money. And he actually pointed all the listeners to BiggerPockets. So I just went crazy fall 2021. I did all the boot camps. I did all the books and the podcasts and the coaching calls. And I just totally became a student of real estate. And that was for a couple months leading up to offering on my first property. So after all the boot camps, all the books, what did you target for your first deal? So staying close to home just felt safe to me. I didn't stick with that for very long because I do live in an expensive market. But staying close to home for my first one felt safe.

3:54Multifamily felt safer than single family because, you know, having more than one unit, I just felt more diversified. Like if one was vacant, I wasn't completely underwater. and I looked at how much money I had to get started with. So I started offering on properties Thanksgiving weekend, 2021. And I closed on my first one, January of 2022. It was a two family about 20 minutes away from me. It was a great deal. It was listed at 410 appraised for 420, but I got it for 357. So I got a pretty good deal. How in 2021, it's pretty hard to get something at a discount. How'd you do that? I think it was just on the market for the perfect amount of time.

4:35I think it was kind of a unique property that a lot of owner occupants wouldn't be interested in. But I also went straight to the listing agent. And I think that made a big difference. I do think that was kind of a risky move for like my first purchase ever. Like I was still renting at this time. I had never bought any property. But I went straight to the listing agent. So I got to really get a feel for what creative things I could put in the offer that would appeal to the seller. And we got to really build rapport. I think that made the difference. And were you planning to owner occupy or were you going to keep renting?

5:09No, I was going to keep renting. I had a really great deal on rent, actually. So it was going to take a lot to get me out of that situation. I did end up house hacking later. But yeah, for my first two purchases, I actually continued renting. I like that. I think that's somewhat of a contrarian view right now. I think a lot of people want to move right into their first investment, which can make sense for most people. But how did you think through that decision? Yeah, for that first deal, I just ran the numbers and I more so ran it for how should this property be performing? Not how is it performing today?

5:43Because there was an inherited tenant who was paying well below market rent. But I was like, if I can just hang on while we bring that person closer to market rent, then this will be a really good investment. It's not going to be a home run the day that I close, but I'm thinking more one year, two year, three years down the line. That's when I really need it to be performing well. Which is the right perspective to have. I mean, it's very difficult, even as we're going into a buyer's market, it's super hard to find deals that are both operating the right way as they should and are priced well. Like either you're going to get something that is priced well and you're going to have to do the work to get it to operate, or it's going to be priced appropriately and you're going to pay for the fact that the previous operator was doing a good job.

6:30So I think what you've done and the kind of deal you targeted is perfect for someone on your first deal. It's a great way to learn and it allows you to buy at a little bit lower price and have more upside on the deal. What other metrics were you targeting? Was there a specific cash on cash return or were you trying to build equity? What attracted you other than price to the specific property? So I still go into all long-term rentals with the attitude of within a couple years, do I think this could cash flow a true net profit of$500 per month per unit? It's awesome. Yeah. There are a couple other standards that I shoot for in addition to that now, but that continues to kind of be my baseline because my ultimate cash flow goal is$15 ,000 a month.

7:14so I know if I can buy properties that are going to cash flow 500 a month per unit if I'm buying them now in these 50 50 partnerships it's easy to back into how many units I need to buy I do think unit count can be you know kind of arbitrary but that makes it easy for me to know you know where the finish line is I on this podcast rail against unit count all the time because I think it's very silly because I know people who have 10 units who perform better than people have 80 units all the time. But what you're doing makes total sense. Like you've set a benchmark for performance. So you're not growing units just for the sake of it.

7:55You've set a quality standard for each one of those units. And if you have a unit count goal based on them performing at a high level, then that makes total sense to me. And I guess is your goal then 30 units, 30 such units? Well, my goal was 50 units with most of them being owned in 50-50 partnerships. Because after I did my first three deals alone, I was tapped out for down payments. And that's when I pivoted into buying in partnerships. So I kind of backed into, you know, if I build the rest of my portfolio in these partnerships, I'll need about 50 total units to be where I want to be. We'd love to hear about those partnerships.

8:34but were the second and third properties you did similar to that first one? Not too far off. So the second one was a single family home a couple hours away that I bought as a vacation rental. And the third one was my house hack. So it's a two family. I have a long-term tenant on one side, and then I also midterm rent my guest room. Oh, cool. Wow. You're just doing it all. Short-term rental, midterm rental, long-term rental on three deals. That's great. Well, that sounds like an amazing start to your investing career, but I want to hear about how you scaled because you mentioned being tapped out, which is a point that all of us get to.

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14:07welcome back to the bigger pockets podcast i'm here with investor jesse dylan talking about how she started close to home bought three properties using a bunch of different strategies using her own money but then at a point realized she was tapped out on her own cash and looked to a new strategy so jesse tell us a little bit about that transition what was it like how did you work through this challenge that every investor faces where they run out of capital to use as down payments? Well, first of all, I didn't have anyone telling me that everyone faces this. So I felt like a huge failure. Like I felt like I screwed up somewhere tragically along the way, because like everyone, everything I saw on Instagram was people scaling in a way that like didn't even make sense to me.

14:55And I'm like, how is everyone doing this? And no one's failing at anything. It seems like everything goes perfect. And then that year, so fall 2022, it was the first BP con that I went to. And I was sitting in Ashley and Tony's presentation about partnerships. And I just had this like, aha moment where I was like, wow, like I am, I've reached this threshold that actually I should be really proud to have reached if it's this rite of passage for everybody. And it just has to become a team sport. And I don't have to be afraid of partnerships like I had been, I realized I just have to find the right partner.

15:33And the first piece of that was figuring out who the right partner is for me. So I worked out in my head like, you know, well, what do I bring to the table? And what would this look like in a perfect situation? And I knew, you know, I wanted a partner that wasn't really going to micromanage me, that was going to trust the process and trust that I was doing my share. I wanted to be the person essentially doing all the work and I needed somebody else to bring in the capital for the deal. So when I got home from VPCon that year, I made a list of like 50 people who I thought they would probably know someone who understands the wealth building power of real estate, probably knows that their money's not working hard enough for them in the stock market.

16:15They understand investing, they're aggressive, but they're too busy to be doing the day-to-day work of real estate investing. So I made a list of 50 people who I bet they probably know someone. And every day I sat down and I texted five people from the list. First thing before I did anything else, I had like a copy paste message and it was something like, you know, I know we're connected online. So you've probably seen that I've been doing XYZ and real estate investing. This is what I'm looking to do next. If you happen to know someone who fits XYZ description, would you just Send them my info and we can have a conversation and see if it might be a good fit.

16:53No worries. If not, hope all is well with you. So I left it in a way where if they didn't want to respond, it wasn't awkward. Most people didn't respond and that's fine. Yeah. But one person was sitting at dinner with her friend and her friend was the perfect fit. She fit the description perfectly. And she was like, this is so crazy. So we had a couple of phone calls. We met for coffee. Our goal lined up perfect. and what made me realize this totally is the perfect partnership is that we both felt like we were getting the better end of the deal. Like we both felt like it was almost unfair to the other person and just like such a no brainer.

17:32So about nine months after that, we closed on a 13 unit long distance together. Today we have over a million dollars worth of equity in that property. In one property? Yeah. Oh my God. Whoa. And we're projecting that we will, by the time it's really optimized, have over 2 million of equity. So when I joked with Amelia and Grace from Wire, that was a million dollar text. Literally, right? Like that's unbelievable. Isn't that crazy? I just want to commend you. That is one of the coolest strategies that we've heard, I've heard on this podcast about how to scale. Because first and foremost, like you said, this is something everyone faces, but no one likes to admit that you run into.

18:16But unless you have a trust fund, like even if you have a high paying job, most people run into a point where you can't scale as quickly as you want to if you're as aggressive as Jesse did. And I understand that you may not know someone off the top of your head who wants to do this. Like it sounds like you didn't have someone you're like, oh, I know I'm going to go to X person or Y person. but you just did this in a systematic way. You just went about this sort of in a probability way, right? Like if you text 50 people, one of them might know and that worked out. So I just feel like this is so cool because it's an approach almost anyone can do and maybe it won't work, but you can at least try this.

18:55This is something anyone can try and you don't know. Now tell us a little bit, Jesse, about the initial conversations with this partner because this is a tough thing. A lot of people are out there trying to form partnerships to raise money. And even if they have great deals and all the right credentials, you're talking to somewhat of a stranger. So how did you build rapport with this person who you were going to ask for presumably a decent amount of money? Our initial conversations were pretty comfortable. We were talking about our goals, not just in real estate, but in life, what we consider a good investment, what we consider a bad investment, what we value in a work environment.

19:37But then as we got into, you know, our second conversation, it was more, what are you most afraid of when it comes to partnerships? What would make you consider this to be a failure of a partnership? Good question. What happens if one of us dies? Where is the money coming from? Yeah. Like, where's the money coming from, you know, how involved is your partner going to be? So just more difficult questions. And you have to honestly just kind of get over it and get comfortable talking about stuff like that. That helped us bake all the right things into our partnership agreement. Yeah. My first deal, I partnered with three other people.

20:14And fortunately, someone gave me the wise advice to hire a lawyer, spend the money up front. And the lawyer walked me through all these questions that you would never think of yourself. and I knew these people decently well, but like it's still sort of just forced an intimacy almost that allows you to really assess the person. Like as you're talking through like a little bit awkward things or sort of having to envision some worst case scenarios too, you sort of see how people react. Are they calm? Do they get nervous? Do they get agitated about these things? I found that process to be super helpful.

20:51So what was the first deal? You wound up hitting a grand slam on this first deal, it sounds like. But you said you went out of state too? Yeah. So first, I was trying to make everything a grand slam in Massachusetts on market. Sounds tough. Yeah, I was really optimistic. But after about six months of making creative offers on market, I realized this just is not going to work. And I think a lot of people pivot too soon. They pivot just maybe when it doesn't work after one day. But I really put in the reps. I was writing and signing offers every single week for six months. And the issue was I was trying to make all of these deals a home run.

21:35But there was 20 people in line behind me offering with traditional financing who were happy to just break even. So I was never going to get an offer accepted. And then we realized, OK, well, we're going for five units and up. So we're going to have to have a property management agreement anyways to close. So does it really have to be nearby? Because the numbers in other parts of the country are so much better. So we looked into a couple different cities in the Midwest where other long distance investors often go. And we just had a conversation about how we feel about each of these cities. We landed on Chicago and we decided together to move forward in Chicago on a Friday and we were under contract on Sunday night.

22:18Wow. Oh my God. That's unbelievable. Yeah. Were there just an abundance of deals or did you get lucky with this one? Well, I will say, I think when you're going long distance and you're from an expensive market, the most picked over deals on loop net look amazing to me. Yeah. It's so true. It's a hundred percent true. Yeah. But I'm also not afraid of, I don't even want to say low balling because I don't think I'm that offensive with it, but I'm not afraid to offer less. And that worked in a day? Yeah, pretty much. So I've gone on to do four deals around the same size in Chicago. They're 8 to 13 units and none of them we've paid asking price.

23:00We've gotten great seller credits on all of them. I think it's a matter of getting something, you know, when it's been on market for a while and really explaining the reasoning behind the price that you're offering rather than just seeming like you're casting a wide net and lowballing 25 people in one day. So you got to tell me about the details of this deal. How did you go from an on-market deal to building a million dollars in equity? So we paid, I have the notes in front of me because I'm so excited about this deal. I try and replicate this deal with every other one. So we closed August of 2023.

23:37It was listed for 1.08. We paid 1.06. We got a$45 ,000 credit. It appraised for 1.1 when we bought it. But today it's worth just over 2 million. Oh my God. And really the value today is only about 75 % of what it would be if everyone was paying market rent. Because similarly to just, you know, everyone's real estate investing journey in general, the finish line just keeps getting pushed out because, you know, market rents keep going up. So we're always going to be chasing this true full potential of the building. But when we bought it, we were maybe cash flowing like $800 a month, but it was irrelevant because we were planning to reinvest any cash flow for a couple years anyways.

24:23But today it cash flows on paper around$5 ,000 a month. That's still only 70 % of what it could be cash flowing if everyone was at market rent. And we are still in a phase where we're reinvesting, we're turning over some units that haven't been touched in a long time. But yeah, we've had that for just over two years. And it's come a really long way. Congratulations. I mean, that's a career changing kind of deal. Thank you. Did you do a heavy value add to boost the equity? Or is it just rent growth? Mostly just rent growth. I mean, I usually target buildings that are nowhere near falling down, like they're at least 80 % occupied.

24:59They're fine. There's just like a tired landlord situation is my favorite situation. There's just a lot of deferred maintenance. Rents are really far behind. An up and coming neighborhood is great. I love when it would meet like the 2 % rule if the rents were where they were supposed to be. Like I like the projected rents or market rents to meet the 2 % rule. That's like a good deal for me. And did you have to put a lot of money in to drive up the rents or was it just gradually working with the tenants and your property manager to move it? More so just like gradually bringing the rents to where they should be.

25:37I think our initial renovation budget was something like 40, 45 ,000. Okay. That was just kind of to be like in our back pocket just in case because we expected some of the turnovers to be pretty heavy as they came. And then I believe in this time, we've probably added another 20 ,000. I mean, compared to the purchase price, though, and the total value that you're getting, very good ROI on that additional spend for sure. Yeah. So what was it like for you moving from investing in your own neighborhood to trusting a property manager to work with, you know, halfway across the country? Honestly, I highly prefer it because I feel like when it's long distance, I'm thinking of it more like a business.