BiggerPockets Real Estate Podcast - Episode Summary

Title: 13 Rental Units with a “Rinse and Repeat” Investing Method
Host: Dave Meyer, Head of Real Estate at BiggerPockets
Guest: Mike Johnson, Chicago-Based Real Estate Investor
Release Date: March 24, 2025

Introduction

In this engaging episode of the BiggerPockets Real Estate Podcast, host Dave Meyer sits down with Mike Johnson, a successful real estate investor based in Chicago. Mike shares his journey from purchasing his first duplex with a modest down payment to expanding his portfolio to 13 rental units within four years. The conversation delves into his investment strategies, tenant management, challenges faced, and the lessons he's learned along the way.

Mike's Real Estate Journey Beginnings

Starting Point:
Mike Johnson began his foray into real estate investing during the COVID-19 pandemic in 2020. With a background as a medical device sales rep and having recently paid off his student debt, Mike sought investment avenues to grow his nest egg. Real estate emerged as the ideal vehicle for long-term returns.

Mike Johnson [02:11]: "Naturally, I started looking at investment vehicles... that's when I stumbled upon real estate and kind of started edging my way to my first deal."

First Investment:
Mike's inaugural investment was a duplex in Milwaukee, purchased in November 2020 for $128,000 with a 10% down payment of approximately $19,000. Securing a favorable 2.8% interest rate, his monthly principal, insurance, taxes, and interest (PITI) amounted to $922, while the property generated $1,700 in rental income.

Mike Johnson [06:12]: "My PITI is 922. So principal, insurance, taxes, and interest. The building's bringing in 1700 a month."

Strategic Market Selection: Milwaukee and Chicago

Choosing Milwaukee:
Mike selected Milwaukee for his first investment due to its concentrated market of duplexes and the ability to invest with minimal cash outlay. Proximity to his job in Chicago allowed him to manage the property effectively, ensuring he could address any issues promptly.

Mike Johnson [04:23]: "Milwaukee is one of the most heavily concentrated duplex cities in the country. And so there's a lot of options."

Expanding to Chicago:
After establishing a foothold in Milwaukee, Mike expanded his investments to Chicago, leveraging his local presence to manage properties efficiently. He emphasizes staying within familiar markets to maximize control and minimize complexities.

Tenant Management and Retention

Building Trust with Tenants:
Mike attributes his high tenant retention rates to his personable approach as a landlord. By maintaining open communication, addressing issues promptly, and keeping rents slightly below market rates, he fosters tenant loyalty.

Mike Johnson [07:49]: "I just try to be a human... they trust me, there's open communication."

Low Vacancy Rates:
Thanks to his tenant-friendly strategies, Mike has maintained zero vacancies across his properties for over four years, ensuring consistent cash flow and minimal turnover-related hassles.

Dave Meyer [06:35]: "There's a nice spread on there. And I've had the same tenants all four years."

Challenges Faced: The Squatter Incident

Unexpected Tenant Issues:
Mike recounts a particularly challenging experience with a squatter who occupied one of his Chicago properties, leading to extensive property damage. Despite following all legal protocols, Mike lost the eviction case due to the squatter's strong legal representation.

Mike Johnson [19:55]: "He had a good attorney that brought up case law. That is rough."

Resolution and Recovery:
The situation culminated in significant property damage, but insurance covered the $55,000 rehab costs. Post-renovation, the unit now commands higher rents and boasts reliable tenants, turning a negative experience into a profitable outcome.

Mike Johnson [21:46]: "Now I get $750 more a month in rent. I get better tenants because it's completely rehabbed."

Scaling the Portfolio: Creative Financing and Strategic Moves

Second Investment - Chicago Fourplex:
Mike's second deal was a four-unit brick building in Chicago's North Side, acquired with a 3.5% down payment of $27,000. By maximizing seller credits and taking advantage of tax prorations, he minimized his out-of-pocket expenses despite a higher property value of $750,000.

Mike Johnson [12:53]: "The building is performing well year to date."

Third Investment - Three-Unit Property:
Expanding further, Mike purchased a three-unit property on Chicago's West Side with a 10% down payment of $51,000. Challenges with a litigious tenant led him to hire a reputable property management company, allowing him to maintain a largely hands-off approach to his growing portfolio.

Mike Johnson [27:01]: "My portfolio is honestly very, very hands off... and so I'm happy to pay the price to be hands off and focus my attention elsewhere."

Fourth Investment - Wicker Park Brick Building:
In August 2024, Mike secured a $1.5 million four-unit brick building in the prestigious Wicker Park neighborhood using a new Fannie Freddie 5% down loan. By closing early in the month and leveraging seller credits, he only invested $38,000, demonstrating his adeptness at creative financing.

Mike Johnson [31:14]: "I was able to capitalize on that pretty much right as that loan package came out."

Key Investment Strategies and Tips

Maximizing Seller Credits:
Mike consistently aims to maximize seller concessions to reduce his cash required at closing. This tactic enhances his return metrics and allows for strategic reinvestment.

Closing Early in the Month:
By scheduling closings at the beginning of the month, Mike secures prorated tax credits and creates a cash reserve buffer, enhancing his financial stability.

Mike Johnson [31:58]: "I just did it as earliest in the month that you can. First is great, second is good."

Leveraging Loan Programs:
Utilizing various loan programs, such as the FHA loans for initial deals and the newer Fannie Freddie 5% down loans for premium neighborhoods, Mike effectively balances leverage and investment quality.

Property Management:
Recognizing when to delegate property management, especially after encountering tenant-related issues, Mike ensures his portfolio remains profitable and stress-free.

Lessons Learned and Future Plans

Tenant Verification and Legal Preparedness:
Mike emphasizes the importance of verifying tenant occupancy before closing to avoid legal entanglements. His experience with the squatter taught him the value of meticulous due diligence.

Mike Johnson [18:06]: "Don't ever close unless you verify the tenants are out."

Adapting Investment Strategies:
As his debt-to-income ratio reaches its limit, Mike contemplates diversifying his approach by considering live-in flips or transitioning properties to fully rented units, ensuring sustained growth without overleveraging.

Future Growth:
Looking ahead, Mike plans to explore larger multifamily properties and potentially expand into different investment strategies, maintaining his methodical and adaptable approach to real estate investing.

Mike Johnson [36:00]: "I may, I may need to cool it for a year or so... rent to retirement... start maybe scaling up a little bit."

Conclusion

Mike Johnson's journey exemplifies a disciplined and strategic approach to real estate investing. By leveraging creative financing, maintaining strong tenant relationships, and learning from adversities, Mike has built a robust portfolio that generates substantial cash flow and positions him for future growth. His "rinse and repeat" method serves as a valuable model for both novice and seasoned investors aiming to achieve financial freedom through real estate.

Dave Meyer [29:07]: "This is just one of those types of approaches to real estate investing that works no matter where you're coming from."

Notable Quotes:

• Mike Johnson [02:11]: "Naturally, I started looking at investment vehicles... that's when I stumbled upon real estate and kind of started edging my way to my first deal."

• Dave Meyer [07:28]: "I love hearing that your PITI is under $1,000. Like that three-digit monthly payment is a rare thing, probably pretty hard to find these days. Hold on to that for dear life."

• Mike Johnson [07:49]: "I just try to be a human... they trust me, there's open communication."

• Dave Meyer [34:08]: "Anytime you have the option or some flexibility about when to close on a property, just do it as earliest in the month that you can."

• Mike Johnson [35:45]: "It's double the rate limit so you can buy twice as expensive of a property and there's no self-sufficiency test."

Key Takeaways:

1. Start Small, Scale Strategically: Begin with manageable investments like duplexes and gradually expand your portfolio using proven methods.

2. Maximize Financing Options: Utilize seller credits, tax prorations, and favorable loan programs to minimize upfront costs and enhance ROI.

3. Prioritize Tenant Relationships: Foster trust and open communication to maintain high tenant retention and low vacancy rates.

4. Learn from Challenges: Adversities, such as dealing with problematic tenants, offer valuable lessons that strengthen your investment approach.

5. Adapt and Delegate: Recognize when to delegate property management to maintain profitability and reduce stress as your portfolio grows.

For More Insights:

To hear more inspiring stories and gain actionable real estate investment strategies, subscribe to the BiggerPockets Real Estate Podcast available on YouTube, Apple, Spotify, and other major platforms. Whether you're a seasoned investor or just starting out, the BiggerPockets community offers the resources and support you need to achieve financial freedom through real estate.