He’s Making Over $100K/Year Cash Flow with Small, Affordable Rental Properties

Summary

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BiggerPockets Real Estate Podcast – August 3, 2026

Episode: He’s Making Over $100K/Year Cash Flow with Small, Affordable Rental Properties
Host: Dave Meyer (with Henry as co-host)
Guest: Nathan Nicholson

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Episode Overview

This episode features Nathan Nicholson, a self-described “tortoise investor,” who has built a real estate portfolio of 23 single-family rental properties in Louisville, Kentucky. If you're interested in achieving financial freedom through simple, low-risk real estate strategies—especially with affordable rental properties—Nathan’s journey from cashing out his 401k to over $100K/year in true net cash flow serves as a blueprint. The discussion covers his acquisition and financing strategies, risk philosophy, adapting to today’s market conditions, and the exact steps he’s taking to optimize (rather than just grow) his portfolio in a challenging rental market.

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Key Discussion Points & Insights

1. Nathan’s Background and Investment Philosophy

[02:08]

• Nathan started investing at 33, cashing out his 401k after realizing his savings weren’t growing even as a top salesperson.
• He targeted small, sub-$100K brick houses in Louisville, emphasizing safety, cash flow, and slow expansion:
  • “I literally will not move forward unless I have cash flow to cover my expenses.” – Nathan Nicholson [05:11]
• He now owns 23 rental properties, with 10 paid off (soon to be 11) and netting about $112,000/year after all expenses.

2. The Path to Financial Freedom: The ‘Tortoise’ Approach

[04:47]

• Nathan’s strategy:
  • Buy small, affordable single-family homes (often under $100K)
  • Primarily use 20% down payment loans after initial cash purchases.
  • Only expand after ensuring stable, positive cash flow.
• “You keep slowly pushing that forward and that's very beneficial. But that's why I've been able to do this at the rate that I have and actually have 10 to 11 paid off properties…” – Nathan [05:26]
• He recommends patience: 10-14 years is “very fast” compared to conventional paths to retirement.
  • “Patient and real estate is still faster than almost any other avenue to pursue this kind of financial security.” – Henry [06:53]

3. Financing Tactics – Cash, Leverage, and Lines of Credit

[07:07, 08:21, 09:44]

• Began with savings and 401k, buying properties outright, then transitioned to 20% down loans.
• Avoids raising outside capital; instead, builds relationships with banks and pays off properties to increase purchasing power.
• Uses business lines of credit: every paid-off property increases his line, acting as his own bank.

4. Adapting to 2026 Market Conditions

[14:37]

• Nathan’s buy criteria now includes a strict 1.3 Debt Service Coverage Ratio (DSCR)—“the new 1% rule”—to ensure cash flow.
  • “That's your new 1% rule...1.3, you're going to make a couple hundred dollars off of it a month.” – Nathan [14:42]
• Not buying unless it hits that 1.3 DSCR, even as those deals get harder to find.
• Avoids “sub 2” and prefers owner/seller financing on free-and-clear properties for risk control:
  • “Sub 2, you don't always have control. The ways that I'm telling you, you have control. Your name's on the personal guarantee, you own the property...” [16:57]

5. Direct-to-Seller Marketing and Recent Deal Example

[19:01, 20:41]

• Nathan does his own direct-to-seller marketing (postcards, niche lists) to save on acquisition costs and beat wholesalers’ fees:
  • “You’re getting 10 grand off every single deal…” – Dave [18:50]
• Recent deal: bought a 4-bed property at far below market value, immediately walked into ~$25K equity and raised rent over six months to generate positive cash flow:
  • “I was losing about a hundred dollars a month and [tenant] was paying $800, now he's at $1400. So now I'm making about $400 net a month after expenses…” – Nathan [21:23]
  • Kept rent below market to retain a good tenant, showing a balance between returns and tenant relationships.

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Portfolio Optimization: Four Key Tactics

[22:44, 23:40, 30:07, 36:11]
Nathan shares the four-prong approach he's using to maximize cash flow from his existing rentals (instead of just acquiring more):

1. Lowering Property Management Costs

• Switched property managers, dropping fees from 12% to 8%:
  • “I saved 4% on $300,000 of rents. Right. I mean, that's a huge amount of money.” – Nathan [23:50]
• Acknowledges the difficulty of moving property managers, but results in substantial, ongoing savings.

2. Judicious Rent Increases

• Raised rents by 3% across 23 properties (yielding ~$8K/year), but ensures increases are market-driven to avoid vacancy.
  • “There is a limit to what you’re able to do. So you need to really think about how much the market can bear.” – Henry [33:13]

3. Accelerated Loan Payoff for Portfolio Growth

• Aggressively pays off mortgages on properties—targets those with the smallest balances but largest payment relief:
  • “I actually wired $56,000 to the bank, and I'm paying off a property...that will net me about $600 a month.” – Nathan [34:03]
• Every payoff gives him more cash flow and increases his available line of credit for future deals, without needing outside capital.

4. Prepping to Refinance at Lower Rates

• Waiting for interest rates to drop into the 5.5%-6% range before refinancing multiple paid-off properties. Plan is to pull equity, pay off additional properties, and boost cash flow:
  • “If I do that and I do it smart, I should be able to pay off two houses and also save probably about $1,000 a month on that refinance.” – Nathan [36:11]

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Notable Quotes & Memorable Moments

• “A lot of people will tell you appreciation is an approach...But if you’re barely making it and you have a...I had a house, a rat house...cost me $27,000 to repair this house. A normal person wouldn’t be able to absorb that...without cash flow, I would have been hurt...” – Nathan [16:18]
• “You have to weigh in this market, the risk of vacancy with the need to keep up with expenses because inflation is pushing up everything.” – Henry [32:36]
• “Just make your existing stuff do better, and you don’t have to take on as much work or figure out the financing or go out and find the deals.” – Henry [23:21]
• “Stick with the math that works, be the tortoise.” – Nathan (paraphrased, throughout)

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Timestamps for Important Segments

• [00:00–02:08] Nathan’s backstory: cashing out 401k, early risk, “tortoise” investing
• [02:52–07:06] Portfolio details, primary strategy, the power of slow-and-steady growth
• [07:07–09:44] Financing journey: cash to 20% down, lines of credit, avoiding outside capital
• [14:37–18:32] Adapting buy criteria to 2026 market: strict 1.3 DSCR, risk management, seller financing
• [19:01–22:21] Direct-to-seller marketing, deal example, tenant management
• [22:44–25:49] Portfolio optimization: property management cost savings
• [30:07–34:51] Raising rents with market considerations
• [34:03–36:11] Accelerating loan payoff, using lines of credit for future growth
• [36:11–38:20] Preparing for refinancing when rates decrease

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Practical Takeaways for Listeners

• Conservative, cash-flow-first strategies can rapidly build wealth in affordable markets—it's not glamorous, but it works.
• Managing your current portfolio for efficiency (costs, rents, and debt) can increase cash flow nearly as much as acquiring new doors.
• Strict acquisition criteria (like DSCR 1.3) and lines of credit help investors stay in control, avoid overreaching, and weather market shifts.
• Direct-to-seller marketing is a cost-effective way to secure deals in a competitive environment.
• Having paid-off properties provides both financial security and flexible funding sources for new deals.

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Connect with Nathan

• Social Media & Google: “Real Estate Nate – Buy, Sell, Rent, Coaching” (Louisville, KY)
• Available on LinkedIn and all major social platforms.

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For more actionable real estate insights and strategies, subscribe to the BiggerPockets Podcast and explore their online resources.

Transcript

[Dave Meyer]

When Nathan Nicholson cashed in his 401k to start buying real estate, people told him he would fail. They said he'd lose everything. But Today, he owns 23 rental properties, generating more than a hundred thousand dollars in annual cash flow. Nathan was 33 and the top salesperson at his company. But years of top performance still left him with only $30,000 in his savings account. Hardly enough to dream about retirement. So Nathan liquidated his retirement fund, and he started buying rental properties in his hometown of Louisville, Kentucky. They were little brick houses, most of them under 100 grand. That was 13 years ago. Now Nathan generates six figures every year after all his bills are paid and his financial future is secure. It's a simple formula.

[Henry]

Buy the smallest house possible, fix it

[Dave Meyer]

up, and watch the monthly rent checks roll in. Nathan's approach is so boring that he actually calls himself the Tortoise. But don't let that confuse you. This strategy absolutely works. And today, he's sharing his exact repeatable formula. The one rule he never breaks. How he's managed to pay off 10 properties even as he scales. And how he's pivoted his strategy for 20. What's up, everyone? I'm Dave Meyer, chief investment officer at Bigger Pockets.

[Henry]

Thank you all for being here.

[Dave Meyer]

We got a great show for you today. We're bringing on Nathan Nicholson, who is one of the most popular BiggerPockets guests in 2025. You can hear his full story by going back and listening to episode 1132 from last June. But today he's back with an update. What he's been up to, how.

[Henry]

How he's pivoting to make the most

[Dave Meyer]

of current market conditions.

[Henry]

So let's bring on Nathan. Nathan, welcome back to the Bigger Pockets podcast. Great to have you here.

[Nathan Nicholson]

Yeah, thank you for having me.

[Henry]

Some of our audience may not have listened to your first appearance here on the show, so maybe just give us a little bit of background about yourself and your investing career.

[Nathan Nicholson]

Yeah, my investing career. I mean, from the prior podcast, it was how to basically make money with $100,000 or less rentals. In all honesty with you, and so realistically, my, my. My beginnings kind of happened with me really just realizing I have to do something different. At the age of 33, being a top salesperson and only having about 30 grand in my checking account going, man, if I'm really good at sales, why don't we have $30,000 in my checking account? And going, what can I do? And I had a couple friends of mine basically talk about real estate investing. And what they were doing. And so I sold my 401k off, took every penny I had, had it, had a dream to say the least, and put all my money into real estate at that time and just kind of been doing it ever since. So that's been about 13 to 14 years at this point.

[Henry]

Tell us a little bit about what your portfolio looks like here today.

[Nathan Nicholson]

Yeah, I mean, from the last time we spoke, it's grown a little bit. I'm sitting at 23 properties, all single family residents at this point and about to pay off my 11th house. So I've got 10 free and clear. And I just literally sent the wire on Friday. So I'm paying off a little two bedroom house. That'll net me about 600amonth. But beyond that, I mean, as far as my breakdown, my rents have gone up, my total cash flow has been going up because I've been trying to surefire my property business. But my rents are at about 311,000 right now. Total cash flow, that's total in is 143. And my true net, which is what I go by, I don't say cash flow, I'll go by true net. True net is $112,000 right now. And I think the last time we spoke it was about 100.

[Henry]

Is it fair to say then you reinvest a hundred percent of your cash flow back into some sort of business, even if it's not for acquisition of your next rental?

[Nathan Nicholson]

100%? Yeah.

[Henry]

Is that hard for you?

[Dave Meyer]

Do you, do you ever get tempted

[Henry]

to just live off of it or you're still in growth mode?

[Nathan Nicholson]

I mean, it's, you know, I'm the tortoise investor, right. I'm very conservative. So to your point, I've thought about it. I'm 46 years old. I would love to retire at 55. I mean, I could probably retire now, but at the same time it's one of those things where it's like I haven't really accomplished really what I want to do yet. I think most investors will tell you the same thing. It's like I have not reached that, that, that spot and that spot is coming. But yes, that's what I'm going towards. But at 55, I think I'll be there. I really want to be at 30 doors and have about 20 of them paid off before I really go full on real estate. And that's at about 55 for me.

[Dave Meyer]

Okay.

[Henry]

I love the goal. It seems very achievable. And you're well on your Way. Maybe before we talk about just what you've been up to recently, you can remind everyone how you got here, because this is where most people want to get to.

[Dave Meyer]

10 paid off rentals.

[Henry]

Incredible. 9 grand a month in cash flow. Amazing. What was the primary strategy you used to get your portfolio to this size?

[Nathan Nicholson]

Being really safe is the best way to put it. I took a little bit of leverage in the very beginning. I took quite a bit of risk. I cashed out my 401k. A lot of people would tell you not to do it, but if you don't have any money, it's the only thing that you could use, you might as well do it because it's like, I mean, it's the only thing you got available. And that's what I did. And it was very risky. And a lot of people told me that I would fail. I mean, it's weird how your friends and people around you will say, you're going to fail, you're going to lose everything. But in situations like this, if you believe in yourself, it really does help. And I mean, 13 years, 14 years ago, that was the catalyst. It was a dream. And that and me cashing that 401k out and just playing it very conservative. I mean, I'm a tortoise. I mean, you'll hear people use this terminology, turtle or the hare. I literally will not move forward unless I have cash flow to cover my expenses. And so I've really stayed true to that. And so that goes back to the first property. If you only make 300amonth, well, that's 3,600 a year. What do I do with that? And you leverage it to 7,200 to 11,000, to 12,000, to 15,000. You keep slowly pushing that forward and that's very beneficial. But that's why I've been able to do this at the rate that I have and actually have 10 to 11 paid off properties is because of following that same process.

[Henry]

I love the philosophy, subscribe to the same one myself. You know, it sounds patient and slow and you're talking, you're saying all the things I agree with, that you should be slow and just take your time with it, but it's really not that slow. Like you said, you've been doing this for 13 or 14 years, going from where you were, which sounds like not necessarily terrible place financially, but not where you wanted to be, and not having the level of savings that you wanted, not having the nest egg that you wanted, to being pretty darn close to financially free. If you kind of wanted to go in that direction in 12, 13 years.

[Dave Meyer]

That's incredible.

[Henry]

It takes most people.

[Nathan Nicholson]

That's very fast, 40 years plus to

[Henry]

do that, if you do it at all. So many people never accomplish that. So I think what we're saying is patient and real estate is still faster than almost any other avenue to pursue this kind of financial security.

[Nathan Nicholson]

Agreefully.

[Henry]

Nate, tell us a little bit about how you did the financing. Because you said you started with 401k. You know, you cash that out, you can't buy 22 properties in that. So were you just saving in between acquisitions and reinvesting cash flow? Was there something more you were doing the 401k?

[Nathan Nicholson]

I started buying the houses with cash up front because my concept was a domino effect. I wanted the dominoes to fall in a way that made me more money. And also, like a cat with a laser pointer, I wanted to have a toy to play with because I didn't know what I was doing. You know, I literally did not know. And so the best, the best course of action was to pay off my first house. And it was an estate sale for about $40,000, give or take 38. And I paid it off cash, and it was livable. And then once I started running out of that cash, I started putting 20% down. I was doing renovation loans. Those are 203ks in the mortgage world. A lot of people use those. And that helped me out with a couple of them at the very beginning. But then what I realized real quick was, you know, I wanted to have a better kind of loan set. And so I started doing single family residence and using my personal credit and putting 20% down. So I'm a staunch proponent of 20% down. It's almost one of the only ways you can cash flow of property properly right now is with 20%, unless you get a really good deal on a bird deal that you're doing.

[Henry]

You've never, like, gone and raised outside capital. You've just figured out a way to do it with a W2 income.

[Nathan Nicholson]

Correct.

[Henry]

Saving and relationships with banks. Like, you were able to just over 13 years, build a very impressive portfolio, sort of the old fashioned way.

[Nathan Nicholson]

The old fashioned way, yeah. Correct. And I know a lot of people that do raise capital, and that's a very good way to go about it. Right. That's your lending structure. But what I. What I figured out is you have to be a cash buyer to get these houses these days. And so my whole motivation once I figured that out was to pay my properties off. As fast as I could. Because, you know, unlike a HELOC or a line of credit on a personal house, you know, you could put it on your home and use it to buy houses, right, and have that liquid. But you could also get business lines of credit. And that's kind of my focus of what I've done. So every time I pay a property off, I refinance it and put it on my line. It has zero money on it. But my line of credit might increase. Like this property I'm about to pay off. I'll get another extra $100,000 on my line of credit. And then I have a million dollars in a line of credit on 10 properties individually in the line. And I could use that to buy houses as my own bank. Technically, that's how I got around. Crowdfunding is, is literally doing it that way. Slow and steady, but you can absolutely do that if you just take your time.

[Henry]

We got to take a quick break, but when we come back, Nathan, I'd

[Dave Meyer]

love to talk to you more about

[Henry]

what you're up to today and how you're making deals and your portfolio grow even during these challenging market conditions. Stick with us. We'll be right back.

[Dave Meyer]

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[Henry]

I'm here with investor Nathan Nicholson, talking about his impressive career he's built in Louisville, Kentucky over the last 13, 14 years. Now, we've alluded to it a few times. Everyone here listening to it knows it. The market has changed. It's different. And so tell us a little bit about your approach, approach here in 2026.

[Nathan Nicholson]

The first thing I would tell you is I only really focus on a 1.3 DSCR now.

[Henry]

Okay.

[Nathan Nicholson]

And that is the very true number. That's kind of your new 1% rule is the best way to put it. A 1% is usually break even 1.3. You're going to make a couple hundred dollars off of it a month.

[Henry]

And for everyone listening, if you're not familiar with the acronym, DSCR stands for Debt Service Coverage Ratio. It measures your debt service, basically what you're paying to your loan company every month for versus your income. Different investors have different targets. But it sounds like, Nate, yours is a 1.3. Some banks will lend on different ratios. 1.1, sometimes 1.2. Nate looks for 1.3. If you're interested in getting a DSCR loan, there's all sorts of benefits to it. You don't have the same level of underwriting. Sometimes it can be a lot quicker. If you don't have a W2 income, you don't have necessarily the credit that most banks are looking for. The.

[Dave Meyer]

These are loans that are underwritten like

[Henry]

commercial loans, but are specifically designed for, like people like us, Right? They are. These are loan products created for our kinds of investors. If you are a PRO member, we do have discounts on DSCR loans. You can go check those out from [e-mail] pro go check those out. But so, Nate, 1.3, right. So that's your number that's getting you cash flow in Louisville. You find in 1.3 deals in. In Louisville right now.

[Nathan Nicholson]

Not really.

[Henry]

Even though you're not finding it, you're holding the line at 1.3, right?

[Nathan Nicholson]

That's correct.

[Henry]

So you're not buying it still unless it's the 1.3. That's the way you got to do it.

[Nathan Nicholson]

Yeah. You don't want to lose money. And so a lot of people will tell you appreciation is an approach. And it is. It really is. I mean, you could get a 1% rulehouse break even on it. It could have, you know, low capex because it has new features, right. If you're doing a burr whatever that you're doing, you know, new floors, whatever. But at the same time, if you're barely making it and you have a, you know, I had a house, a rat house. I call it the rat house. It cost me $27,000 to repair this house. So a normal person wouldn't be able to absorb that. You know, that's a huge hit. And without cash flow, I would have been hurt or anyone else would have been hurt. So yeah, the 1.3 rule is really steadfast in my mind because that's what's gotten me here. I've really followed this approach from day one. But the other thing is the creative finance angle is, you know, some people like sub 2. I personally am not a sub 2 person. I know a lot of people that have a lot of, a lot of positive things that have happened to them by doing sub 2. I personally like owner financing on free and clear properties. I like doing the tricks that I just gave you with commercial financing. I like these little tricks because I'm in control. That is the one thing. Sub 2, you don't always have control. The ways that I'm telling you, you have control. Your name's on the personal guarantee, you own the property, stuff of that nature.

[Henry]

This makes sense to me. First of all, your affinity to seller financing over sub 2 makes sense to me given you're just what you've told me a little bit about your risk tolerance concern. Yeah, yeah, exactly like I am Not a sub 2 expert, but there is some gray areas in sub 2 that add risk and it might be right for some people, presuming that's done ethically and legally. There still are some gray areas and those are things that you need to consider.

[Nathan Nicholson]

That is correct.

[Henry]

When you do seller finance, if someone owns a property outright and they're writing you a loan, like that is very low risk, very high upside in my opinion. And although they're not the easiest to find, they're out there like I hear investors doing them all the time. So are you just acquiring those the same way you would do a wholesale? You're just, you're doing direct to seller marketing, you're sending postcards, you're building websites. And that's why, as you said, getting in front of the deal, you're trying to eliminate all the middlemen is essentially what you're saying. Because I've worked with wholesalers, I have nothing against Wholesalers, but they're charging a fee for their service, as they should. It's a business and I'm paying that fee. So I don't get the best possible

[Dave Meyer]

price on that property.

[Henry]

Because me, Dave Meyer, I am not willing to do the direct to seller marketing. I just don't do it. But you are saying by doing this direct to seller marketing, you're getting 10 grand off every single deal with which is hugely appealing. So maybe, you know, Henry talks about a lot on the show, but like

[Dave Meyer]

what, what amount of effort does it

[Henry]

take you to do this direct to seller marketing and what amount of money does it take you to do this direct to seller marketing?

[Nathan Nicholson]

You know, I don't spend a lot on the marketing. It's more for material like postcards, you know, getting list created, stuff like that AI to generate lists. And a lot of that stuff you could do very semi cheaply. I mean postcards, I just put an order in for 500 postcards. And they're very niche, very specific. I designed them myself. I do a lot of the work myself actually is the answer. And so I design my postcards, I put all the effort into it. I make the calls, I mail them out, I pay for the stamps. But in regard, the only other effort that's there is disposition. It's really just getting the information, calling the lead, having them call you, introduce yourself and then handing them off to a partner that could do disposition. So really my focus is on less external effort because I'm a growth manager for a large company and I'm very busy doing that. And also the fact of risk flipping would make more money, but it's risky currently and wholesaling is actually less risky than flipping currently it is. And, and it also gives me the time with my kids because I have two very small kids that are in travel sports and if anyone knows anything about travel sports, oh my God, take

[Henry]

it all your time.

[Nathan Nicholson]

Yeah, that's right.

[Henry]

So just to prove that, I mean Nathan's telling us that this is possible, like if you want to go out and get the best possible prices, these are things that you can absolutely do. We're not going to get too much into the tactics here today, but we have tons of great episodes. Nathan obviously has some good advice. We had a recent episode with Andy Gill who was talking about this. Henry talks about it all the time, but this is just a way that you can absolutely get good deals right now in this current market. It's absolutely something that you should consider.

[Nathan Nicholson]

Absolutely.

[Henry]

Nathan, one last question on this. Have you bought anything recently?

[Nathan Nicholson]

Yeah, yeah. So there's two deals. One of them was a property that I got in late fall and it was the property I was referring to a little bit earlier. It was a four bedroom house. Realtor was trying to sell it $125,000. Already had the drive by done on this property and I purchased it. And anyway to price for about $170,000. 175, which allowed me to immediately.

[Henry]

Oh my God.

[Nathan Nicholson]

Purchased it with no money out of pocket, you know.

[Henry]

So you're just walking into like 50 grand in equity on that?

[Nathan Nicholson]

Yeah, yeah. Like almost 25,000. Yeah. Right out the gate. And it didn't make any money due to the current rent with the tenant. But in the last six months I have raised the rent twice. That's, that's very not normal. Right. But I had to start making money on this property. I was losing about a hundred dollars a month and he was paying 800 and now he's at 1400 dollars. So now I'm making about $400 net a month after expenses in a period of six months with no money out of pocket.

[Henry]

Is that 1400 like what market rent should be?

[Nathan Nicholson]

So actually it's lower than market rent and I'm trying to help the family out. I met them when I walked the house and everything and they're good people and they maintain the house. So I told them 1400 was 200 less than what he would spend anywhere else. And he agreed. And so I left him there and I didn't want to lose him. He's a good hard working guy and I didn't want to disrupt his family. But I did let him know that, you know, obviously this is the prone to kind of being an investor. I let him know I have to make money and this is where I need it to be. And he was, he was, he was able to do that. So it worked out.

[Henry]

So clearly you figured this out and these are repeatable things. These are things that really everyone listening to this podcast can go out there and do. Now, Nathan, you mentioned you're not just looking for new deals, you're also trying to optimize your business and to make

[Dave Meyer]

more out of what you already have,

[Henry]

which is the name of the game right now. I mean, I always want to go out and buy more, but there's so many things going on in the market that make it increasingly important to pay

[Dave Meyer]

attention to your operations. What are some of the strategies and

[Henry]

tactics you're using to better your performance of the stuff you already got Short enough.

[Nathan Nicholson]

The business is, I would say, one of the top priorities that I had this year and on my board behind me is making sure that my business is running efficiently and that I can maximize cash flow, because, again, I'm trying to find ways to scale and build. So to your point, I mean, if my rents are $311,000 right now and my net cash flow is 112. Well, the math that I did, based on these four things that I'm going to tell you that I'm doing to kind of shore up my business will increase my cash flow by almost 30 to $40,000. That's not a small number. I mean, that's a. That's a lot of money.

[Henry]

I mean, like, if you think of it that way, that's the equivalent of buying, you know, five, eight more houses, right? Like, absolutely. Everyone's focused on acquisitions. Like, you know, just make your existing stuff do better, and you don't have to take on as much work or figure out the financing or go out

[Nathan Nicholson]

and find the deals.

[Henry]

So I see the motivation there. 30, 40. I get it. How are you doing it?

[Nathan Nicholson]

You know, there's four things that I've really been trying to focus on right now. And it was property management, right. Trying to figure out a way to get my costs lower, which at the time, I was paying 12%.

[Henry]

Oh, that's high.

[Nathan Nicholson]

But, you know, I did move property managers, and I saved 4%. So that, you know, right now I'm paying 8 on my portfolio, and I feel like that's fair compared to everyone in the Louisville marketplace. And So I say 4% on $300,000 of rents. Right. I mean, that's a huge amount of money.

[Henry]

How did that conversation go?

[Nathan Nicholson]

It is a hard discussion in general because it was very hard moving my properties. Let's be real. It was a major ordeal. And so it. So I. I earned that extra. 4% is the best way to put it.

[Henry]

But that will pay dividends for years. That's 12 grand a year. That'll compound for. For indefinitely.

[Nathan Nicholson]

That's right.

[Henry]

You know, and most things, real estate. I talk about this a lot on the show. You get what you pay for. How has the quality of your property management changed if it has, since moving to a less expensive provider?

[Nathan Nicholson]

So, you know, some things have changed, some things haven't. I actually feel like they're doing a really good job at 8%. He's a local gentleman, has 250 to 300 doors. They're on top of it. So actually, I feel like I'M getting a lot for my money at this time. There are some different costs that I'm paying currently, but I think they're doing a really good job in all honesty. And yeah, I do got to do some things outside of it, but at 8%, it's worth it to me, in all honesty with you.

[Henry]

Absolutely. Yeah, exactly. It's like is that worth 12 grand a year, that little bit of doing stuff? And it sounds like the answer is yes. So yes, that kind of sounds like a no brainer to me. So I mean that's a great thing for people to do. Just for our audience listening, Audit what you're paying for property management. You know, shop around, comparison shop with everything you do these days from contractors to insurance to property managers. Henry and I talk about this. The spread between quotes is astronomical these days. It's insane. That's a 50% difference in property management fee from 8 to 12%. Right. You were paying 50% above market rate

[Dave Meyer]

and that's market rate. So you're even going to like a low cost provider.

[Henry]

That happens all across the business.

[Nathan Nicholson]

Yeah.

[Henry]

Stick with us. We'll be right back.

[Dave Meyer]

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[Henry]

I am here with Nathan Nicholson, who's telling us about the portfolio he's built in Louisville, Kentucky. Talked about deal finding strategies and how he got started. But you said you've really turned your

[Dave Meyer]

focus to just optimizing and making the

[Henry]

most out of your existing portfolio. So you said you were doing four things. Sounds like number one, as you change property manager was the next thing you did.

[Nathan Nicholson]

The second thing Is, is that even in a market? And so Louisville's kind of been depressed in rents and I think other markets may have this scenario happen as well. There's just less people running these houses. It's kind of wild. But Louisville is one of those markets. So I still had a rent increase of 3%. So on, you know, 23 houses at 3% that raised me up another, you know, $8,000 a year right there. We've executed on, I think 14 of them and the others have leases and we're going to be executing on, on those in the fall and they're still all under rented to the market. So the good news is I'm not above the market, I'm below it. And that will actually give me quite a bit of extra equity and capital as well per year. And so if people aren't raising rents or they feel like they're under, I always keep mine a little bit under. But you know, the reality of the situation is try to look to raise because rents have to go up. I mean taxes are going up, insurance is going up, liabilities going up. People are destroying houses at a much higher rate now for some reason, I don't know why, but they were destroying your houses. So you have to ask for those rent increases every year and be, be very stout about it.

[Dave Meyer]

Raising rents.

[Henry]

Obviously if it, the market will bear it and it's needed for your business, it's something to consider. But like sometimes the market won't bear it. You know, you can't just say like, oh my expenses went up 3% so

[Dave Meyer]

I'm raising rents 3%.

[Henry]

If there's competition in the market and someone can find an equivalent property without that rent increase, they might go do that. So like it sounds like though you've been able to do that without issue.

[Nathan Nicholson]

Pretty much all of them except for one house is rented at this point. No one moved. One. The, the rat house is what I call it, the one that was destroyed. We put a lot of money into it and I tried to run it at 11:50 for a two bedroom, 800 square foot and Louisville and it's not taken right now. There's a lot of competition and the house is updated, fully updated. And so I've got it at 1050 and it's still not going. So that's a hundred dollar drop in this market on two beds in the last, I'd say four months. And yeah, the market, the market is not bearing it at this point. Rents are dropping in this marketplace. So I'm being very cognizant of that when I'm asking for these rents. But if a tenant does come back to me and they negotiate, Right. I'm more than willing to negotiate in between, and I generally do that. But we haven't had anyone really leave due to that because either, either it's too much. And they say, hey, look, if you could take $50 off of the 100 that you're raising it, I'll stay and we'll just accept it. You know, so that's, that's something that we've, we've been doing to, to keep people in there.

[Henry]

I think it's something for our audience to keep in mind that you have to weigh in this market, the risk of vacancy with the need to keep up with expenses because inflation is pushing up everything. Repairs, maintenance, taxes, insurance, everything.

[Nathan Nicholson]

Right, I agree.

[Henry]

And as a business person, you have to keep pace with that. At the same time, tenants don't have to pay. They don't care what your business.

[Dave Meyer]

Right.

[Henry]

Like, they don't care that your prices are going up. They have a budget, what they can afford, what they value your property at. And that's why you just can't be overly aggressive.

[Dave Meyer]

You have to find the sweet spot.

[Henry]

3% seems very reasonable to me. Like, that's basically the pace of inflation. So it's not like, crazy. But I sometimes hear people say things like, oh, my prices went up 10%, so I have to raise rents 10%. You don't have to. And first of all, you probably can't. You know, like, there is a limit to what you're able to do. So you need to really think about how much the market can bear. And that can be from conversations with your tenants, talking to other investors, talking to property managers in your area. But this isn't just something like, oh, you know, I should go raise rents because I want to. There is a consideration there, and I think you're doing a very reasonable job with it, Nathan. And what I would recommend for the majority of investors out there.

[Nathan Nicholson]

Absolutely.

[Henry]

All right, so those are the first two. What's the third thing you've done to help your business perform better?

[Nathan Nicholson]

So I've been focused on paying houses off to increase my, my capital that I could use to buy houses off market and wholesaling and stuff of that nature. You obviously have to be prepared to have cash. And so obviously the third thing is trying to find ways to pay off rentals quicker. And so what I've been doing right now, I actually wired $56,000 to the bank, and I'm Paying off a property on Lee's Lane, that will net me about $600 a month. So if you do the math on that, that's another 7,200 to $8,000 a year right there to just pay a property off. And generally what I do is I target the, the ones with the highest mortgage, with the lowest cost to actually pay off. And so when I do the math on paying off Lee's Lane, it's going to return right around 10%, which is a really good return. And that's why I'm paying that one off. So that's the third thing that I've been really focused on.

[Henry]

Tell me a little bit about just the strategy here because what you're saying makes sense. Like I agree with this approach entirely, but at the same time you've also talked a little bit about how you want to maximize the money you have for investing. Right. And so where's this philosophy shift is just market conditions. Like you're not seeing enough that you want to buy that so you have a little bit extra capital and you're like, where do I get the best return right now?

[Nathan Nicholson]

So the reason why this makes a lot of sense for also helping me in investing, say wholesaling or having cash to do that is because when I pay this house off immediately, I'm going to add it to my line of credit. So not only do I get a paid off house that saves me 600amonth, but I'm also going to put it on my line of credit and get an extra $100,000 in capital added to my line of credit, which would be right around a million dollars at this point once I add that. So it gives me twofold. It allows me more purchasing power to not have to crowdfund and just self fund this myself. But it also allows me leverage to make money while it sits there as well. So it's twofold, makes a lot of sense.

[Henry]

And you can always refinance it later if you want to either use a HELOC or whatever or sell it. Exactly. So that's three out of the four. We talked about your PM costs, raising rents appropriately and paying off some rentals. What's the fourth thing you've done?

[Nathan Nicholson]

My main focus this year is to wait for rates to drop in the five and a half range on either commercial or traditional financing or dscr. Like Calvi is a great place. I mean, Calvi is a really good company. They do a really good job and you could use companies like that as well. But the thing is, if you could refinance your houses, say 23 houses. Ten of them are paid off, and I could actually refinance 10 of them. And I have so much equity from the appreciation that's been happening that I could take that appreciation, pay off another two or three that are free and clear and still net an extra 100 to $500 a month in cash flow. With doing that, that is a huge proponent to what I'm trying to do right now. And if I do that and I do it smart, I should be able to pay off two houses and also save probably about $1,000 a month on that refinance. And I think that we'll be in a position to do. Do that.

[Henry]

Even if the rate's higher.

[Nathan Nicholson]

Yeah, even if the rate's higher. For, for instance. Yeah, exactly. I think the rates will be in the five and a half to six and a quarter range. But if you buy it down a point, you should be in the, in the realm that you need it, which is about five, seven, five, give or take to six. All right.

[Henry]

Well, yeah, if you could buy it down, you're more optimistic than I am about.

[Nathan Nicholson]

Yeah, exactly. I'm not.

[Henry]

I'm not so sure about that.

[Nathan Nicholson]

I hope you're right.

[Henry]

I hope I'm wrong.

[Nathan Nicholson]

Yeah. I hope we can get there. We'll see what the market. I mean, there's a lot of things that are causing issues in the marketplace right now. But, you know, the goal, the goal that I've heard was a 1 1/2% fed rate. And so we're at a 3, 6, 2 5, and I'm in the mortgage industry, so this is what I know very well. And, and so if we're at a 3, 6, 2, 5, and we need it at one and a half, I mean, if the rest of the world is at 1.5, we have to find a way to get that Fed rate down. And so they're really focused on that. So I am really, you know, leveraging my gambling hand here to stay within the next, hopefully 12 to 18 months. Right. That's conservative to your point. If we could hit six, I think you would see a huge amount of people trying to refinance their properties, and I think that would be very smart for them to do that, in all honesty with you.

[Henry]

Yeah. I mean, if we get to that rate, that makes a lot of sense to me. We'll just have to see if we can get to that rate. Maybe 12 to 18 months. I'm not as optimistic this year about 20, 26. At least.

[Nathan Nicholson]

Yeah, this year's rough.

[Henry]

Well, Nathan, this has been a lot of fun. Thank you so much for catching us up here. People want to connect with you. Where should they do that?

[Nathan Nicholson]

Yeah, I mean, obviously you could find me online. It's real estate, Nate. Buy, sell, rent. Coaching is my business in Louisville, Kentucky. You can find me on social media, too, under the same exact search terms. So I'm on social media. I'm on LinkedIn. I'm on everything that you could possibly think of and also on Google search and stuff of that nature.

[Dave Meyer]

Awesome.

[Henry]

Well, thanks so much for being here, Nathan. We really appreciate you and thank you all for listening. Again, if you want to check out DSCR Loan, some of the things Nathan was talking talking about, and you're a

[Dave Meyer]

Bigger Pockets Pro member, go to biggerpockets.com pro and check out the discounted rates

[Henry]

we have for you and we've negotiated for you through ki. Also, if you want to learn more

[Dave Meyer]

from people like Nathan, make sure to subscribe to the Bigger Pockets podcast or

[Henry]

follow us on YouTube so you never miss an episode. Thanks again for watching. I'm Dave Meyer, and I'll see you guys next time.