How I’m Making “Passive” Income with 4 Rentals (Working 9-5!)

19:14It's a Keller Williams derivative. But they are far and away my biggest key team player. They run numbers like no agency I've ever seen. They will send detailed BiggerPockets reports along with Excel sheet breakdowns of every single deal that they push out. And anything I bring to them will get the same response. My agent, her name is Jess Caldwell. I got to shout out Jess. Yes, she is phenomenal with this. She has incredible connections on the vendor side as far as contractors and anything I need from plumbers to roofers to title companies and stuff like that. But the way they run their deals gives anybody the kind of confidence I had to actually move forward.

19:55Ashley Kehr:Mike, were you able to find most of your team from referrals from your agent? Was there anybody that you had to go out and find yourself or did they kind of recommend everyone you needed? I would say the bulk of it, maybe like 70 % comes from them. And I did find some of my own people in the beginning. Like my property manager, I actually found on my own, just doing a ton of Facebook group searching and Google review hunting and stuff like that. The majority though, it seems like it's only been two years, not even really. But every time I go back to their kind of preferred list or word of mouth through, especially through Jess, I've yet to miss with one of them.

20:41So I guess they say rock stars work with rock stars. So I'm happy with what I'm finding pretty much anytime they refer somebody.

20:48Ashley Kehr:What about your lender? Did you use a lender that was based in Detroit, a nationwide lender? And was that part of the referral system or did you have your financing lined up first? I've done both. So for the first deal, I did do kind of a broad spectrum. I think it was, I don't even remember the broker's name, but it was a referral from the turnkey provider. And then whoever that was ended up selling it off to Mr. Cooper. But now I do use a local broker that I've used for two deals and I will be using. I'm closing next week on the triplex I mentioned in my previous video there. So he's far and away been getting me the best interest rates.

21:35He's extremely responsive. I've had twice where I'm tracking the interest rates and I get a text where it's like, hey, you're not doing better than this. I locked you in. I know you've been asking. And he's right. It ends up coming in like a quarter of a percent lower than anything I'd seen up until that point. So I'm very happy with them. Their closing costs are not crazy. They tend to beat almost everybody. And the response rate alone is impressive.

21:59Ashley Kehr:Is this a broker where he's shopping it out to different actual lenders or this is a small local bank you're going to? It's a broker. So it's not I've yet to dive into the local bank. I've heard nothing but the best about doing that. But this guy's treated me so well and he's got such a good relationship with the rest of the people on my team that I have yet to, you know, go a different direction. I'm honestly just curious because I feel like there really is a divide that these are the two great ways to find a lender. Go with a small local bank or credit union or go with a broker who's out shopping your loan.

22:38Ashley Kehr:We never get people that really ever come on and say they're with a big, huge national bank and got the best deal ever and their loan officer would call them and talk to them and blah, blah, blah. So, yeah, I was just curious your input on that. And because I think those are two of the really best options that local broker or a small community bank. I would say from what I've heard in this market, particularly, there's one or two people they seem to recommend consistently. And pretty much the deal is if you want to really not have any fear about your appraisal, if you want the ability to maybe put a HELOC on something that not every lender would do or pull out lines of credit or borrow against the equity, obviously that local bank will probably be your best bet.

23:27But as far as efficiency, just saving time and getting a solid rate, I lean toward Chris and the broker side and being so far away and being so busy with my W2 and I got my wife and my daughter and everything else here. I'm okay with that as of right now. Maybe when I start reevaluating the whole portfolio, we'll move to local banks, but I'm good with it.

23:51Tony J. Robinson:So Mike, one of the other people that you mentioned that were an important part of your team was your property manager. I guess first, why did you choose property management? Some people say like, Hey, I can do this myself. Like, what was it about the idea of property management that made it attractive for you? So first of all, from a distance, I had no desire at all. Um, that I, I just felt like there's no way. And to keep it a little bit more passive, I had to find somebody. Um, I looked into a few of the referrals that had been, whether it be Facebook posts, bigger pockets from my agent and Google.

24:25This is one that I ended up going separately and kind of picking my own just because of the interview process. And I think I asked the standard questions a lot of people ask property managers. Do you invest yourself? How long have you been in business? What do you know about this market, this thing? What kind of assets are you generally – how many assets do you have under management? What do you work with primarily? Stuff like that. A lot of the people that I interviewed had a very corporate, very high-level response to a lot of the questions. It was kind of like, well, we, you know, we manage the area.

24:57We do have a little bit of everything. It was never the kind of, you didn't get that like hometown feel that I got out of this guy who still had like a 20 year track record. He was a local investor. He knew and he could very easily mention things like street by street, neighborhood by neighborhood. And I just felt more confident in that. Plus he had good Google reviews. So I went that way. And so far I've been happy.

25:23Tony J. Robinson:Mike, what's one specific question that you ask a property manager or even a contractor now that you didn't know to ask when you first got started? As silly as it sounds, I was warned by a few people that just people never, they will not buy a house with a giant tree on the front lawn. And I never asked why. And now because of a$5 ,000 cracked sewer line, I know why. I wish I would have dove into that a little bit more. I wish I would have asked my PM if they have a lot of their properties insured for that sewer line, water line. Um, now I do do that because the$7 a month I pay would have saved me like$4 ,900.

26:03So, um, that's definitely the thing that stands out.

26:06Ashley Kehr:Mike, when you decided to invest, did you have a set amount of reserves set aside for a circumstance like this? What would be your advice to a rookie investor that's got money saved for a down payment? How much should they have in cash reserves in case this same thing happened to them and they had to fork over$4 ,900? My rule of thumb, whether it be via my HELOC currently, or when I was just using my own like savings account, I like to have between 10 and 15 ,000 per property set aside just because it's the individual residential properties at this point. That said, I guess everything can vary depending on, you know, when I got started, even just two years ago to now, My income level is different by a pretty significant amount.

26:54If somebody's making$50 ,000 versus$500 ,000, it's going to be a very different thing where I guess as long as you're not living wildly outside your means, maybe you don't need as many reserves because you got big paychecks. But my rule of thumb is at least$10 ,000 if not$15 ,000. Just because anything that could go wrong that you didn't see already in the inspection report, odds are that'll cover the bulk of it, at least within the year. The odds of your roof collapsing, your hot water tank going, and your HVAC shooting craps all in the same year is, I don't know, I think you got pretty bad luck there if that happens.

27:32Ashley Kehr:If anyone listening, if you're doing the same as Mike for reserves, or you have a different take on how much you should have in reserves, or how to protect yourself, or maybe it is just using your W-2 income, if something comes up, let us know in the comments on YouTube. We would love to hear your opinion, your advice on this.

27:52Tony J. Robinson:Now, Mike, you said yourself earlier that you're not very handy. I guess, how did you get over that fear of not being able to fix things yourself? Because I think a lot of rookies have this misconception that I'm not an investor if I don't DIY my projects. How did you get over that fear for yourself? The more I read specifically or listened to podcasts specifically in the niche of long distance investing, the more I was hearing, well, what issue did you encounter? How did you overcome it? Whether it be a busted sewer line, like I said, or a roofing thing or a tenant issue. And the majority of the issues when you listen to the high level guys who have a lot of doors or have a lot of experience tends to never be that.

28:38And I was like, well, if I'm buying out of state and I could almost not jump that DIY stage, but not have to deal with that component as another thing looming versus worry about the numbers, worry about the teams, worry about the systems, and then worry about scale once you have the other taken care of. Um, I think I heard Dan Martell maybe who was saying like the, the most successful entrepreneurs work on their business, not in their business. And if you're too busy fixing toilets, it's not going to be as easy to scale and raise private money or whatever avenue you're trying to, to pursue to grow.

29:19And that was kind of the, the driving force behind it. Um, beyond my ineptitude with a hammer.

29:26Ashley Kehr:You know, that's funny you say that because like in our business, Daryl does like most of the maintenance and I do, you know, the computer stuff is as he says. And like last night he got out his computer that wiped off the dust and he's like, I want you to teach me to computer. Like, what can I do on my computer? So like when we go on trips and we go places, like I can do work and not just have to like be at the property. And I started laughing and it's like so true when you do become the maintenance person doing all those repairs, things like that, you only get your work done when you're physically at the property.

30:03Ashley Kehr:And that's your time, your time gone. So it just like that conversation last night was like a big mental shift for him too, is to like, I need to get out of doing some of that maintenance stuff and get, what can I be doing that's useful that's on the computer? But I'm not sure how useful he will be when he's telling me, teach me how to computer. I guess, and that kind of leads us into the next thing I want to talk about are the systems. So even though you're not doing the day-to-day stuff, there's asset management, there's the acquisition piece of getting properties. So what's a system or systems you have set up that have saved you a lot of time and stress?

30:43So at my stage, which is really only four deals at this point, I'm definitely different than someone who might have 20 or a hundred or whatever. But the one thing that seems to be my biggest pain point is bookkeeping and just keeping track of the bills and the finances and all that stuff, especially once you have more than one property. And the short-term rental that I have, that adds to it a lot because there's a lot more there. That said, for me, it's Excel sheets. And I just have designated sheet that has everything broken down by property, every bill that needs to be paid. As many of them as humanly possible are set to auto pay and paperless billing.

31:23and the beginning, the first week of every month, I just hit that sheet and I go right down the line, make sure everything's covered there. Once that's done, I have an attached sheet that is like my monthly income expenses report that I create and I send it to my CPA at the end of the year. So it's kind of a one-two punch and that way it probably only takes me 15 minutes, if that, to do all the bills and check everything for the week, another 20 to put it all in. And that's once a month. And, you know, it was a lot more difficult when I had paper mail coming and I'd open this and it would come different weeks and I had to try to keep track and I never had it all set in one place and I'd eventually miss an electric bill or something like that.

32:06But just keeping the bookkeeping clean is probably, from what I've heard, a common rookie mistake and I made the same one. So that saves me a lot of time having it all consolidated. it.

32:17Tony J. Robinson:Mike, I feel like we hear bookkeeping is like the pain point for so many new investors. And I know for me, like even early on, that was the thing that I hated the most about real estate investing was just like managing the books, you know, and like going, we used Stessa when we first started and just like going into Stessa and like tagging everything. And like, it was like the most mundane part of real estate investing for me. But as I've matured as a real estate investor, I think I've grown to really appreciate good bookkeeping because you really start to be able to see trends in your business and you can start to really identify like, hold on, something's not right there.

32:55Tony J. Robinson:And as you build more discipline around reviewing your P &Ls, you can start to see like, well, man, something's off. And I'll give you guys a prime example. I was reviewing my P &Ls, I think it was last month, maybe the month before. And I noticed that for one of our properties, our cleaning expenses were exceeding our cleaning income. And I was like, that's not how it should be. Like we always charge more to our guests when we pay our cleaners what's going on there. So anyway, after some, some digging, I found out that our cleaners had raised our rates on one of our properties, but we never went back to the listing to increase the rates there.

33:26Tony J. Robinson:And we got this like negative balance. So just like, there's so much value in really running your business effectively. If you can take the time, A, to make sure your books are clean, but then B, having the process in place to go back in and review those. I guess, Mike, from the properties that you have, have you had any actionable decisions come out of having a good set of clean books? Actually, yeah. I know you are big into the STR space, and that's the one that really kind of taught me the lessons more than anything, just because there is so many little, I have to pay the utilities there versus my long-term rentals.

33:59I have to pay maintenance for not just the cleaning, but also the hot tub and stuff. And the thing that kind of made that apparent to me was we bought a house that needed a good amount of renovation as well as the furnishing. It didn't have a tub to begin with. It didn't have an exterior space. So we kind of piecemealed that. And every month my owner's statement, because of the different maintenance changes, would be different. It was, this is your cleaning fee in February. And then come March, we added the hot tubs. So now there's a different thing there. And I noticed like, oh, well, this is getting to be quite a bit if we do X amount per month for just the hot tub maintenance.

34:41And we ended up pivoting, going directly to the cleaner versus keeping it in-house. So that is one thing that I very slightly manage on my own. But it's, again, once you have the system set up, whether it's be them connected to your schedule or your bookings or what have you. It's a little bit of front end work that saves you a lot of time on the back end and usually will save you money as well.

35:04Ashley Kehr:So Mike has built his team and his systems, but what about actually scaling and building a portfolio? After the break, we'll talk about how Mike moved his first single family into multifamily and why he believes cashflow isn't everything. We'll be right back.

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40:19Tony J. Robinson:Truehold Financial, NMLS number 274-0541. Equal housing lender, subject to approval. Details at truehold.com. All right, guys, we're back here with Mike, and now we're diving into how he scaled his portfolio and why his mindset about cash flow and equity has evolved. So, Mike, you mentioned this before the break, but you added a short-term rental, and I believe was in the Poconos and then a duplex and a triplex in Detroit. What made you decide to scale into small multifamily? Small multifamily was basically just, I saw the power of getting more income out of less roofs and less hot water tanks and less, et cetera, et cetera, et cetera.

41:01Mainly roofs, I guess, because there should be multiple furnaces and stuff if you have a real big multifamily. But yeah, I saw how you could scale and then leverage some of those assets a little bit better than a single family home. And it was appealing. So I went with it. The short term rental route was purely because of a connection I had with a mastermind group, kind of a networking group that I joined. And they had a really great team out in the Pocono Mountains that they clearly are the A players in that market. They have the best listings in that market. The management's very good. And I saw the potential for the cash flow there, but also an asset that I could actually visit and if nothing else, get eyes on if need be.

41:48So I took a plunge with that. That was actually my second deal.

41:51Ashley Kehr:So what was different between the short-term rental operation and maybe the asset management of your long-term rentals that you kind of had to adapt to? After taking the plunge on the short-term rental, I think I've learned that that may or may not really be for me. I might go back in that direction in the future, but it's definitely more hands-on even with a property manager. There's just a lot more purchases and bills and utility. It's just a little bit of extra, like we said, bookkeeping. and compared to my long terms that once you have the things systems in place once it's fully rented it's really pretty plug and play unless an issue arises um i do do an annual kind of inspection of my long-term properties uh through my my contractor just to make sure everything's going to be up to code for our city inspection the following year but beyond that in theory i shouldn't have to pick up the phone and there's not a lot of bills to pay with the long-term.

42:49The short-term, a little bit more reward, but definitely more work.

42:53Ashley Kehr:What's the cashflow difference though? Like, is it usually, you know, everyone says like the short-term rental is worth it because it makes so much more. What would you say in your opinion? My market is extremely seasonal. So for example, my like, hey, a good long-term rental in my, the Southeast Michigan market, you're looking at maybe two to $300 of cash flow per door for per month, I should say per door. Um, last month for, for May, I should say for the short-term rental, we walked away with 2 ,400 in cash flow. So 8X, which is fantastic. The only problem is the fall and the spring. You could be, if you're, you're lucky, if you're break even, you're, you tend to be a little bit in the red and hopefully not too far in the red.

43:43So you really make the bulk of your money in the summer and the winter because there's a lot of ski resorts, there's water parks, there's a raceway, racetrack up there where they do NASCAR. So it depends if you're okay with the volatility. In the long run, it probably breaks out to about$500 to$600 a month, maybe a little bit more if you have a good year. But it's still nearly double what a normal door in Southeast Michigan would give you.

44:09Tony J. Robinson:And as you talk about cashflow, Mike, I mean, you say now that maybe cashflow isn't the end all be all of a good deal. So what other things are you looking at now to evaluate the merits of, hey, this is a good deal or this isn't a good deal? Forced equity all the way. I am not so far a believer in the point where I would buy something that doesn't cash flow. Otherwise, I'd probably buy in New Jersey because the appreciation is great here, but you're in the red no matter what. But that said, what I love about my market in Southeast Detroit is you can find things that you can at least be break even while doing work, doing rehab to these properties and forcing almost every penny you put into it is going to be forced equity if it's in the right condition.

44:58My duplex is a good example. We bought that for$107 ,000 and it needs a lot of work. It needs a new roof. The whole downstairs unit needs a total overhaul. All in, we're probably going to be like a$40 ,000 rehab on that. But the comps once fixed up are in the$170 ,000,$180 ,000, if not$200 ,000 range. So you're getting 100 % ROI on the renovations. And meanwhile, I have tenants in there that are actually keeping me in the green while we do it. So it's kind of a win-win. But as far as the actual take home at the end of the year, if I can force$50 ,000 of equity through that process, you're never going to make that in cash flow in one year.

45:45It's going to take a long time to match that.

45:47Ashley Kehr:Well, Mike, thank you so much for joining us today. We really appreciate you taking the time to talk to our listeners, talk to us and share your story and to give great advice. Where can people connect with you and find out more information about what you're doing? Instagram would be the best bet. I have a designated like a little real estate page that I'm slowly building up. It's called Yonder REI, like yonder long distance. So Y-O-N-D-E-R REI would be the tag on Instagram. Awesome. Well, thank you so much again. We really appreciate it. I'm Ashley. He's Tony. And thank you so much for listening to this week's episode.

46:25Ashley Kehr:We'll see you guys next time.

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