These “Small” Rentals Boast BIG Cash Flow (Even at 7% Rates)

0:00This investor bought 11 units, almost all of which have 7 % interest rates, and he's still producing cash flow. So if you're sitting around waiting for rates to drop before you buy an investment property, you're probably wasting your time. Instead, you could be in the game, building equity and moving closer to financial freedom every day. Today's guest is living proof that it's possible right now.

0:30Hey, everyone. I'm Dave Meyer, head of real estate investing at BiggerPockets. I've been buying rental properties for 15 years now. And on this podcast, we teach you how to achieve financial freedom through real estate. Today on the show, we have the story of an investor who seems well on his way to achieving financial freedom himself. Justin Albrecht bought his first property in his hometown of Kalamazoo, Michigan at the end of 2022. and since then he's been able to cut his own living expenses to almost zero and he's built a portfolio of four properties totaling 11 units and the cool thing is that Justin's not doing anything crazy he's just patiently buying one house per year sometimes putting as little as $16 ,000 down at a time he's also adding value to his properties by renovating them even though he doesn't have some fancy construction background.

1:23And this is the exact investing formula I talk about all the time on this show. Justin is building equity that will compound over the coming years, and that should enable him to replace his entire income with passive real estate cash flow within the next decade. So let's bring him on and hear how he got started and how you can too. Justin, welcome to the BiggerPockets podcast. Thanks so much for being here. Thanks for having me, Dave. This is awesome. Tell me a little bit about yourself. Who are you, where are you from, and how'd you get into real estate? My name is Justin Albrecht. I'm 30 years old.

1:57Grew up in small town, Michigan. And because I was from a small town, stayed local through college, I decided to get a job in tech sales from a global IT solutions provider. And I moved out to Chicago, Illinois. COVID kind of brought me back abruptly. So I started my home search. And end of 2022, the housing market was pretty competitive. Oh, yeah. And so when I started looking for single family houses, I was outbid every single time. Not even competitive. People were offering over asking price for every single house. And of course, I didn't have the funds to make that happen. So I actually looked at multifamily housing.

2:38That's when I started running the numbers of, oh, hey, we can actually have half or more of the mortgage covered by a tenant living in the other part of the house. And ultimately, I ended up landing a house built in 1900, a very old Victorian style house that, as you can imagine, it's been split up a million different ways through different ownership throughout the years. And I don't pride myself on finding home run deals. This certainly wasn't one of them, but it allowed me to get my foot in the door through my very first acquisition. I'm very familiar with these cut up Victorian 1900s. That's how I got started as well.

3:16They can make good deals, but man, the maintenance is an interesting element to it. I love that you're saying that this isn't a home run deal. And honestly, I think that's totally fine. We'll hear more about the numbers, but for first time investors, the goal is not to hit a home run. The goal is to get into the business and learn a little bit. It sounds like for you, the goal maybe at that point was just to even find somewhere to live, to move out of your mom's house. But I'm curious, did the property management element of buying a multifamily instead of a single family home intimidate you or give you pause at any point?

3:53It certainly did. Yeah. I quickly began a plethora of Google searches of how to make this happen and how to do it the right way. I came from no experience and it certainly wasn't the plan going into my home search, but I found bigger pockets fairly quickly, actually, thankfully. And you guys had so much information out there of how to be a landlord, how to do things the right way. You had documents available for leases, move-in checklists, all of that, that actually quickly built my confidence in becoming a landlord and kind of squashed a lot of the hesitations that I originally had. Well, I'm glad to hear that we were able to help you get over the hump.

4:32That's what we're here for. How did it go? Can you tell us maybe just some of the numbers? What'd you buy it for? What kind of neighborhood was it in? Give us some details about the property you bought. So I originally bought this house in Kalamazoo, Michigan for$255 ,000. Like I said, it was a four unit house. I bought it at the end of December of 2022. So the first year in 2023, I put$15 ,000 into renovations. And the following year, I also put$15 ,000 into renovations. When tenants would move out, that's kind of when I would fix up the place and then re-rent for a greater rent. How did you finance it originally?

5:10I financed it with the FHA 203k loan. So I leveraged the 3.5 % down. The 203k loan, there was about 10k in renovations because there was an unfinished kitchen and an unfinished bathroom. So that 10k that was actually built into the loan via the 203k portion of that loan, that was done prior to me moving in. And were the other three units occupied? They were occupied, yes. And what was it like inheriting tenants? Because that's a question we get a lot on this show. And I think especially if you're moving into it, it's an intimidating thing. You want to know the people who not only going to be your tenants and residents, but also your neighbors.

5:52So what was that like? It was actually great. Western Michigan University being so close, it's kind of student housing centric. So actually, all of the tenants that were there were roughly my age and they were super nice. They had lived there for multiple years prior to me buying the house. So they knew the house better than I did when I moved in. And establishing a good relationship with them quickly led to just finding the quirks, any renovations or repairs that needed to happen right away. It led to a good relationship. I'm glad to hear that because a lot of people hear this idea of house hacking like you were doing and understand the financial benefits, but get hung up on the idea of living next to the residents and tenants that are part of your business.

6:36So I'm glad to hear that because I want just everyone in the audience to remember and know that these situations more often than not actually do work out, at least in my experience. There's no data about that. But as Justin can attest to, and I can as well, it actually can be a benefit if you get to know and be in your property because you'll learn a lot about it. And you also get to learn to be a good property manager at the same time. So Justin, tell us a little bit about the numbers, because you said at the beginning, you got into multifamily investing and purchasing because the financials just didn't work with a single family home.

7:12How much were you actually paying out of pocket to live in this property or were your tenants covering your entire mortgage? My mortgage payment after the income that was coming in from the tenants paying rent was only$400. And I thought that was awesome. I'm like, if I can get a$255 ,000 house and pay$400 a month with room to grow as repairs and renovations happen, to me, that was awesome. I was sold. I was like, let's do this. How do we do this again and again? I mean, that is amazing. And I think something for everyone to remember here is that if you are house hacking, the whole goal is not necessarily to cash flow.

7:54If you can get positive cash flow, great. That's difficult in a lot of markets these days. But if you can just lower your total cost of living, that's going to greatly set you up financially for the rest of your investing career. Now, you were probably, I don't know if you were paying your mom rent. So your cost of living was sort of inevitably probably going to go up. but by going only up by$400 is great. And that doesn't even factor in the other ways that you're making money from real estate. Just by paying down your mortgage, every single month you're earning money because you're paying down what you owe the bank.

8:34And I would imagine that's probably close to 400 bucks a month minimum. So you're probably at least coming out even, if not ahead, every single month. And you get all the tax advantages. You get that appreciation upside as well. So you're being humble and modest saying that this isn't a home run. But I think starting from zero and getting a deal like that is a fantastic first step into real estate. It was great for me because I knew the house needed work. That was the expectation going into it. And if I only had to cover$400 a month in the mortgage, then the rest of that money or additional money could all go towards repairs that I was kind of expecting anyway.

9:09So it actually helped cover a lot of the work that needed to be done to the house. And it wasn't ton. It was more so stuff that I could do myself. It was flooring. I did do a kitchen remodel, which I bought cabinets and stuff off Facebook Marketplace. So I was pretty savvy in terms of buying things that still looked good, but weren't going to break the bank. This sounds like a classic, great house hack. This is an excellent first step into real estate investing from a financial perspective. Let me ask you about the time perspective, too, though. You're working a full-time job. you have other stuff to do, was becoming a property manager and a landlord a burden for you time-wise?

9:52It definitely took more time than I expected. Says every landlord ever. And I generally joke, but I'm serious when I say I tend to do things the hard way for some reason, especially when I first start off. So doing the renovations, working at a cardboard box, trying to work while there's renovations going on was absolutely a thing. That definitely happened. And I wouldn't, I would be lying if I said it wasn't a little distracting, but at this point is my first house. I'm super excited to fix it up, make it myself. So I was super excited. I didn't care about the time or even some of the extra man hours I had to put into it.

10:32Very cool. Well, hats off to you. This is a perfect example of how to get creative, to get into real estate. You know, you put in a little bit of elbow grease, you find a way to finance a low down payment, you find a way to get money from a two or three K loan to put in the renovations, you do some of the work yourself. Like I know you are not wanting to call it a home run. Maybe the finances aren't as crazy as some of the things that you hear on social media. But this for our audience, people listening, this is a good deal. This is a good real estate deal. And if you're thinking about how can you get into real estate, this is a very good example and template that I think many people could follow.

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15:31Welcome back to the BiggerPockets podcast. I'm here with investor Justin Albrecht. Before the break, we talked about Justin's first deal, a house hack that he did in Kalamazoo, Michigan. Bought a four unit, moved into one, fixed it up a little bit. That was at the end of 2022, right? What have you been doing since? So quickly after that, in August of 2023, I bought my first investment property. I bought a duplex, another fixer upper for$126 ,000. And that was leveraging a true investor conventional mortgage loan. So I had to put 25 % down, which ended up being$37 ,000. At this point, I had listened to hours of BiggerPockets community.

16:12I think I was within the 1 % listeners on Spotify at this point. So when I was looking at the numbers of this new duplex, putting 25 % down on this property, my mortgage ended up coming out to be about less than$1 ,000. I think it's$975. And running the numbers, I knew that I could get about$2 ,000 per month in rent. The kicker on this property was that it came with an extra lot next door. Oh, what? Yes. So it's kind of a buffer in my eyes where like if this really hits the fan, I can parcel this off and sell the extra lot for about$15 ,000 and cover any unexpected expense that comes my way. So to me, it was kind of a safe bet where all I have to do is completely gut this whole house and then I'll have about almost$1 ,000 in cash flow per month.

17:01All I have to do is just rebuild this house from scratch. That sounds like a lot of work. So I didn't have to take it down to the studs or anything, but I did all new flooring, all new paint, new kitchens and new bathrooms that actually kind of happened over time. It didn't all happen right away. The really cool thing about this property that I would tell anybody on the street is that my sister moved in the weekend after I closed on it. Her apartment lease ended on a Friday. And then that whole weekend, my brother and I ripped out all of the gross carpet. it. We painted and mudded the whole house.

17:37There was a lot of cracking. There was chipped paint. There was a lot of this. So we got this place pretty much move-in ready in a weekend for my sister to move in. How much did it cost you, Justin, to get the property rentable? Because you said you put$37 ,000 down. How much more did you have to come out of pocket to bring things up to par? Throughout the year of 2023 and then into 2024, I've put about$22 ,000 into the house. Okay. And this is all coming from savings, personal savings? It is coming from my W-2 career and savings from living with my mom. So it was a combination of income coming in and savings that I had.

18:16So you did that first one for your sister. Did you just move on to the next unit right away? Was it vacant? So it took me a total of nine months to complete the second unit. And the only reason why it did was because after I had gotten my sister's unit renovated or livable, I went back to my first property that I was still living in and renovated one of the other units when that person moved out. And that took me about three months. And how's it performing now? So I got that second unit rented in September of 2024. I feel like it was a very pivotal moment in my investing career because it was at this point that pretty much canceled out all of my living expenses.

18:58At that point, I was making$1 ,900 a month in rent. That was your gross income, right? $1 ,900 in rent. And then after expenses, how much did that come out to cash flow? It was about$700. Wow. Yeah. Total lawn care, water, sewer, trash, vacancy, repairs, all of that came out to about $1 ,200. So back of the envelope, you had$700 a month in cash flow times 12. That's like 8 ,400 bucks a year. You said that you invested all in down payment plus your renovation cost was about $60 ,000. And I'll just pull out my calculator here. That is a 14 % return on equity, which is a really fantastic deal. I mean, that is, if you can find that in today's market in 2022, 2022, that is a absolute home run deal.

19:50That's good to hear from you, Dave. That means a lot. I question a lot of things as I'm covered in drywall and paint sometimes. So it's good to hear from you that I'm on the right track. Well, again, super cool second deal. I want to hear what you're up to now, but we do have to take one more quick break. Stick with us. Buying real estate has a funny way of making the future feel very real. You start thinking about mortgages, cash flow, tenants, and suddenly you realize, if something happened to me, would the people I love be okay? That's why life insurance is one of those things that's easy to put off, but is super important to actually deal with.

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