Sleeping at Work to Build an 8-Unit Portfolio in America’s Most Expensive City

0:00Do you think living in a big, expensive market means you can't invest in real estate? Think again. Today's guest works a demanding, travel-heavy day job. So he's building a rental property portfolio as a backup plan. And he's doing it in and around New York City. This is not a story of an already rich person buying properties in cash. It's about using hustle and persistence to build towards financial freedom, even in one of the country's most expensive markets. Ben was even willing to sleep in the office he was working in to kickstart his investing career. And although that type of sacrifice isn't for everyone, it might just be for you.

0:46Hey everyone, I'm Dave Meyer, housing market analyst and head of real estate investing at BiggerPockets. And today we're bringing you the story of an investor named Ben Chester. And I'm super excited to talk to Ben because he's one of the very few people I've ever met who's doing basic rental property investing in New York City. And Ben isn't buying giant apartment buildings for millions of dollars. He's also not buying really risky properties in suspect areas. He's found a way to acquire one-bedroom apartments that cash flow in some of America's most expensive zip codes. So on today's episode, Ben's going to tell us the exact formula he found that makes these deals work, even when starting with six figures of debt personally that he had.

1:33He'll tell us the story of how he turned Billy Joel's house, yes, actually Billy Joel's house, into a cash-flowing investment property, how he can offset almost all the taxes from his W-2 career with real estate investments, and he'll give us his advice for other investors who want to stay local but live in hyper expensive markets. Let's welcome Ben. Ben, welcome to the BiggerPockets podcast. Thanks for being here. Thanks so much for having me. All right, well, let's jump into your backstory a little bit. Tell us a little bit about the circumstances that led to you getting started as a real estate investor.

2:07Yeah, so like a lot of people, I graduated school, didn't get the best job, was making $30 ,000 a year, which in New York City is basically the poverty line. and I was spending all my time at the office, but all my money was going towards rent. So trying to run this experiment where I actually decided to secretly move into my office full-time. Okay, hold on. Where were you working? So, I mean, when I say office, it wasn't too bad. It was actually a sleep clinic. I was doing medical research for pharmaceutical trials. Oh, okay. So there were beds at least. There were beds, yeah. And the beds were not always 100 % occupied.

2:39So there's a lot of nights where I actually had a pretty cozy hotel room in like midtown Manhattan. Wait, were your employers, aware of this experiment? No, they thought I was a hard worker. So this is 2012. So, you know, shortly after I got the job, Hurricane Sandy hit. And I was the only one that actually showed up at the office that day. So they thought I was a super hard worker. They're like, oh my God, Ben came in despite like Armageddon, the hurricane. Turns out I was just living there. So I had nowhere else to go. But I got promoted and kind of moved up pretty quick after that, which was awesome.

3:06And as far as I know, that is a first time hearing this on the show. I feel like that's something you see on TV or in a movie where someone moves into the office to save money on rent, but you really did it. So you gave up your apartment? I need to know how you pulled this off. I was in a lease, so I couldn't actually just pack up and leave, which was my original desire to do. But because I was on the hook for that rent, I actually put it up on Craigslist and started renting it out. Furnace rental, stay as long as you want, because I thought I needed to cast a wide net to get someone interested in to rent it.

3:36But there was like crazy demand actually for a furnace flexible housing there. And so I kind of hung on to the job as long as I could at the sleep clinic. But that experiment kind of ballooned into an actual like full time massive business where we got venture capital investment for it. And we're trying to pitch it as a tech company to get the better valuation. But what ended up happening was like we were getting crazy pressure to grow super fast. And so we're taking on lots and lots of inventory. But those of you are like, you know, in medium term rentals or any seasonal rentals, it's like very ebbs and flows in terms of demand.

4:05So we would grow crazy quick and then have like these big troughs of vacancy, which ultimately killed the business. I actually left that business with over like$120 ,000 worth of personally guaranteed debt that I put under that business. And it was gone. So I was basically starting from nothing with like, I mean, less than nothing. I had 120K of debt that I had to recover from. Oh, wow. What a roller coaster. I mean, what do you do at that point? Yeah. So, I mean, it was pretty devastating. Not only that, like it was the debt, but also it was like I'd spent, you know, years of my life building this business.

4:33and it basically imploded. So I needed to basically figure out how to survive. I didn't want to leave New York, which was like my dream was always to live there in the first place. So I definitely didn't want to leave the city, which I think a lot of people end up having to do. And so what I do is I got a W-2 job because I really had no other choice. I had to do it just to pay off this debt over time. And then I also got an apartment because I had this whole skill set of like, you know, how to rent apartments. I knew how to kind of work with landlords in the city from that experience. So I found a one bedroom apartment with my girlfriend at the time, we moved into a one bed and then we had the landlord reconfigure it to basically turn it into four.

5:06It was like, you know, I'll call them rooms, but I use that. Spaces in New York. Yeah. Yeah. Yes. And then we rented, we got three roommates. So it was my girlfriend and I, and then three roommates. And so we have five people in a one bed, one bath. But what was great about that, and we did that for about a year and a half, was great is it covered all of our housing expenses. So we weren't, we literally weren't having to pay to be there. We just had to coordinate roommates, which is, you know, can kind of be a pain, but it was worth it. And then all my W-2 income was basically going towards paying off debt and also a little bit towards retirement and stuff like that.

5:34You know, I grew up in the New York City area. I understand what you're talking about when you said a one bedroom just magically turns into four bedrooms. But maybe you can explain that to people who aren't familiar with that. That particular one we had actually the super was also a contractor and he built like temporary walls, basically. So it was actually it felt nice. It was actually sound privacy and stuff. A little small, but it was livable. And then there's other situations where there's one where I literally lived in a walk-in closet with my co-founder. This was prior to that, but when we were launching the first business, we lived in a duplex on Fifth Avenue, which was amazing.

6:12Beautiful, beautiful place. But we rented the rest of it out, and then we stayed in the walk-in closet together. Unbelievable. I love it. All right. So you sort of got back on your feet doing this strategy. It sounds like something you knew from the business you had started, like kind of replicating that for yourself personally. Did you then at any point scale to a traditional real estate portfolio or did you just keep doing this kind of hustle mentality going forward? Well, the goal all along was to basically do this just to get out of debt and basically like graduate to the next level, which was going to be ownership.

6:46And so I saved up about a year and a half of saving and paying off debt aggressively to get to the down payment. One thing that's really helpful when you mentioned like finding a job that you can live in, one version of that a lot of people have access to is a travel job. So if you're in a job where you're getting put up in hotels and they're paying your expenses, which that was, I was able to not only get my rent covered, but also I was able to get food and I wasn't spending a lot when I was on the road. So combination of that, I basically aggressively put close to everything towards saving for an apartment, got my first down payment, moved into a New York City co-op, which is not easy to do, got rejected from a few because they had seen my history with like all these apartments I had and the press from like having this business.

7:22They're like, are you going to do this in this apartment? I was like, no, no, no. But which I wasn't I wasn't trying to build like a new tech business there and like, you know, bring in strangers and all that. But but what I did do is I found a one bedroom apartment in and I say one bed. It was basically a closet in Hell's Kitchen. You probably know it. It's, you know, and one of the grungier areas in 2019. My girlfriend moved in. Also, my brother moved in. So we had three people now, which was felt like luxury. We had our own place. were spending like probably$750 each to live there, which is super cheap for New York.

7:49Like that's unheard of. The principal payment on every single mortgage was about the 700. So like I was pretty much like from a net wealth perspective, like breaking even, even though I was paying into it. Now I was paying off that mortgage. I was like at least neutral on housing. Okay, everyone, we got to take a quick break, but we'll have more with Ben right after this. So I found this thing called the Lennar Investor Marketplace. And honestly, it's kind of genius. It's built by Lennar, one of the top home builders in the country, and it's a new platform for investors who want turnkey new construction homes.

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11:29Welcome back to the BiggerPockets podcast. Let's jump back into my conversation with Ben Chester. I'm curious, though, because this is a common question that I get a lot and I think is pretty common in the real estate investing community, whether it's New York or LA or San Francisco or any of these pretty expensive markets. Why did you choose to buy a home versus, say, continuing to rent and investing in either midterm rental, short term rentals, whatever you want somewhere else, if you wanted to get in real estate, what about this approach made sense to you? I had no idea. I just knew like, I just need to buy real estate.

12:07And so the first step was, I got to live somewhere. Like if I can find a place I can hang on to. I also viewed as like every month or every year, you know, landlords are raising rent. So there's always this kind of like unsettling feeling. If I want to stay in New York forever, there's a chance I could get priced out. I won't be able to afford here if I'm renting. But if you buy, you're pretty much locked in. Of course, co-op fees can go up, but it's not like a landlord raising rent on you. So if I could just lock in a place and have a 30-year fixed rate, and at this point, it's still below 3 % too.

12:34I knew I'd be set basically where I could make sure at a minimum, I'd be able to afford New York as long as I wanted to stay there. Oh, that's great. Okay. I like that approach. And so it sounds like that worked for you. So it was fantastic. So this is, again, this is 2019, the first apartment, basically locked in. And I viewed it as like, I'm set, like I'm going to be able to stay in New York no matter what. And then COVID hits. So meanwhile, I'm like still making W-2 income. I'm still traveling all the time. So I didn't really care if my living conditions were terrible. Like I was like, as long as I have a place back in the city to stay in, it's OK.

13:04But I started looking as like, you know, the world's changing right now. Things, interest rates are still pretty low at this point. I actually started looking in Texas and I discovered that like I would save on taxes if I moved to Texas during COVID. I also could find a lot of really great quadplexes and houses there that would basically cash flow. If I bought the old fashioned house hack, you move into one unit, rent the other three out. You can basically cover all expenses. But then with the tax savings on my W-2 income, I actually would come out ahead even if that property only broke even. So house hacked with a friend there for a short period of time during COVID.

13:35It was like a great experience. Did you know what you wanted to buy? Like were you looking for a duplex or still just doing the roommate thing? I had no money still because everything was still going towards. I had some of that debt left and also still not making any cash flow. So all the income that's coming in, I was saving it for a down payment. And at that point, I had only maybe like$20 ,000,$30 ,000 saved up. And my friend was in a similar boat, which is enough for a down payment. So we ended up using an FHA loan, which now you can do this with a conventional 5 % down, which is amazing. But we used a 3.5 with a higher interest rate FHA loan in Dallas.

14:07And so we paid, it was like$30 ,000 to$40 ,000 total to get into this property, cash flow from day one with the unit that we were living in. And it basically created this springboard where the tax savings, even though it was making a small amount of cash flow, it was just we were saving on taxes. And then on top of that, we were also basically able to start to build equity in there and get the tax benefits and everything over time. So what was the place like? Tell us about it. So it was a quadplex. Still have it today. It was four units all next to each other. Basically like four townhouses in a sense all combined under one roof.

14:35So it was super nice. It was an area in Northwest Dallas that was appreciated a bit and then became a good source of income and also for like, you know, tapping in for equity for some of the later purchases that I ended up making. And what happened after that? You left Texas or what was the next move? Yeah. So now, you know, rates are starting to move back up at this point. And so I had basically acquired a couple of properties. I had with this one in New York that had a rule where you could rent it out after a certain period of time So I got it as a like a long-term rental And then I was going back to New York and looking for another place to live and so Acquired another co-op through a similar method this time was with my brother who was Moving to New York for residency and also another one who's an architect two of them So we're all gonna basically live in a place I could find together and kind of house hack which we did And now the snowball is really starting to take off and so every couple years I'm getting a new apartment in New York.

15:24And then I'm also starting to get enough cash where I can start thinking about down payments outside of the city for like more conventional rentals. You're pulling off something that's pretty tough, which is by most people struggle to just pull off a single acquisition in New York. But you're pulling off multiple. So when you move back from Texas, what is your financial situation like? Are you making a lot of cash flow off the other two rentals? Is that helping you with the down payment? Or how did you actually finance this third purchase? Yeah. So the main thing I'm always looking for is just like, I want the property to break even because keep in mind, like I'm planning to keep this W-2 job.

15:59So I have enough money coming from that. If I can break even on the properties with conservative underwriting, like, you know, I don't want to expect miracles or anything, but as long as a conservative will break even with the tax benefits of appreciation, I'm happy. So at this point, there's not really much cash flow sitting off the properties. Everything's breaking even. And there's enough like for reserves. So like, you know, lose a water heater or stuff like you could, I could handle that without flinching. but I wasn't like, you know, living off of it at all. What was good though, is I had this W2 job.

16:24So I was having enough where I was getting a little bit of savings starting to go. So there were some creative strategies you can later use to tap into those retirement funds. But basically I was coming back to New York with enough to put down a down payment on another co-op essentially. Do you mind sharing with us the price point of these new co-ops? Yeah. So at this point, I'm still looking at about entry level. So like half a million dollar range, which is entry level for New York. That's not as bad as I thought you were going to say. Because that's close to the median home price in the US right now.

16:51That's not like crazy New York pricing where everything's$2 ,000 a square foot. This is true. But keep in mind, these are one bedroom apartments with something wrong with them at that point. Like sitting up there. Right. You're not getting the luxury apartment of 500 grand. Like the toilets in the living room. Yeah, exactly. There's something not quite right about the place. All right. So you're back in New York. You had your stint in Dallas and now have three properties. Sounds like six units. units, where do you go from there? Still buying more in New York City? Basically looking for anything.

17:22So again, I don't really have a form strategy yet. I kind of dabbled in like New York and the multifamily. So I was kind of looking everywhere to see what would stick. The problem was in New York City was getting harder and harder to find those units that would make sense. Not impossible. There's still, and I actually did end up buying another one we could talk about later, but I was still just looking around New York at this point. One thing that happened too, is I got my license as a realtor to try to basically like stretch the money further. I was like, if I can get paid a commission at the same time of acquiring these, it kind of offsets the acquisition costs.

17:50It could be a good strategy. And I started to look around MLS and then also just on Zillow everywhere around Manhattan. Manhattan wasn't making a lot of sense. And also like the cashflow, it's not very interesting. Even if you could find something that makes sense, it's still just breakeven. So I started to expand my search in a one hour radius of the city. And I found a lot of really interesting waterfront properties, particularly where they'd be like, you know, same price point, half a million dollar houses needed work, right? They're not like, you know, beautiful, ready to go houses, but they're on amazing pieces of land.

18:19Are these far from the city? Are they vacation destinations? What kind of locations were you looking at? So I knew that the property themselves, as long as they're close to the city, I felt like people would probably go as long as the house was a destination in and of itself. So to me, I was like, you know, my friends and the people I know, like they probably would travel an hour to go to like a lake house. And it doesn't necessarily matter where that lake house is as long as it's nice enough and it's like accessible. you'll probably get eyeballs there. And it was kind of just a gut thing. There weren't any comps at the time.

18:46There wasn't really any sort of clear data that it was a good decision. I was just like, I think we can make this work. And your plan was to renovate them, though, because it sounds like you hadn't really done that yet. Like at scale, like you've done kind of like putting up these walls. But now you're talking about taking something that's not very nice and turning it into a destination. That's like a pretty big shift. It was massive. It was way more than I expected to. And at this point, I started listening to BiggerPockets, where it's always about like value add and people are dealing with contractors and stuff.

19:13So I'm like, okay, like, you know, it seems doable, but oh my God, it's like way harder than you think. And also I had no idea how to price out properties either, like renovations and rehab. So, but I, I did know that this was a beautiful lot. I found this lake house that was on like a double lot on a lake that was within an hour of the city. And it's just like, okay, it needs a new bathroom, probably needs some updates to like, you know, general updates, the outside and like some safety stuff, electrical, like, you know, way more than you normally like get for a normal house, but like it was lendable.

19:40I could basically finance it. And I was like, you know what? Worst case scenario now, I have enough W-2 income coming in that even if it takes longer and it implodes, I can at least sustain the mortgage on this and have it. Worst case scenario, I could just rent it as a long-term rent. How about financing the furnishing? Because that, I joke about this on the show, but I think the worst underwriting mistake I've ever made in real estate is just totally missing how much it was going to cost to furnish short-term rental. especially if it's like a big one that you're trying to make a destination because you got to spend money to make it cool you can't just throw facebook marketplace stuff in there how do you pay for that part of it yeah so actually this is another creative financing trick that i found along the way almost by accident like i know you've mentioned before on previous shows like the zero percent credit card hack with like you can get a zero percent intro apr on a business credit card well so i basically did that and i was thinking like you know i got like a 20k limit on the card.

20:38So I was like, okay, that's great. At that point, I had a new LLC for every single property that I had acquired. So I had a couple of LLCs with cards that I never used 0 % intro on, but they had credit lines. And a cool hack that you can use, at least with Amex and Chase, is you can actually take credit lines from those other businesses and put them onto the 0 % card. And it's free. They let you do this. You just call them up. It takes like six minutes. So I turbocharged that intro 0 % card to basically fund the entire rehab. And so I didn't pay any, I think between 12 and 18 months, I didn't pay anything at all in terms of interest.

21:07I just paid it off by the end. All right. Time for the disclaimer, though. This is a great idea if you can pay this off. Using this kind of loan can be a very effective strategy. I hear people do this most commonly in short-term rentals. I think this is kind of a common approach to doing this, getting the 0 % interest. It's a way to get pretty much free financing. But if you don't have a plan for repaying that back, and it's got to be a good plan, this can be really dangerous. So it is one of those things where you kind of want to use these when you don't really need it. If you are like, I'm banking everything on using this 0 % interest free credit card, I wouldn't do that personally, if I were you.