BiggerPockets Real Estate Podcast Summary

Episode: Making $200K/Year With the Least Amount of Rentals Possible
Release Date: February 19, 2025
Host: Dave Meyer
Guest: Dion McNeely

Introduction

In this episode of the BiggerPockets Real Estate Podcast, host Dave Meyer welcomes Dion McNeely, a successful real estate investor from the Tacoma and Seattle area. Known for his unique "Binder Strategy" for raising rents, Dion shares his journey from accumulating significant debt to achieving financial freedom with a streamlined rental portfolio.

Dion McNeely's Journey to Financial Freedom

Dion began his real estate investing career at the age of 40 after a tumultuous period marked by job loss and substantial debt. Transitioning from a career in law enforcement to teaching at a CDL school with an income of $17 an hour, Dion faced the daunting challenge of overcoming $89,000 in unexpected debt from a divorce. Determined to change his financial situation, he ventured into real estate with minimal experience, making numerous initial mistakes such as renting without a lease and renting to friends.

Quote:
"I made every mistake I could think of. I tried to do it without a lease. I tried to rent to a friend."
— Dion McNeely [02:10]

Despite early setbacks, Dion educated himself and began house hacking in 2013, acquiring properties during periods when many advised against investing due to market instability. His persistence paid off, allowing him to retire in 2022 with a portfolio generating over $21,000 monthly cash flow from 18 rental units across eight properties.

Key Milestones:

• 2013: First duplex acquisition during market downturn.
• 2015: Second property amidst predictions of a housing crash.
• 2018: Third property despite high prices and interest rates.
• 2020: Expansion to a fourplex and triplex during the pandemic.
• 2022: Retirement with substantial passive income.

Core Strategies and Philosophies

1. Binder Strategy: Letting Tenants Raise Their Rents

Dion's flagship strategy involves allowing tenants to propose rent increases, thereby fostering a sense of autonomy and satisfaction. By presenting tenants with comparable market data and fair rent figures, he often negotiates rent hikes that are mutually agreeable.

Quote:
"I don't raise the rent, my tenants do."
— Dion McNeely [15:28]

Implementation:

• Provide tenants with current property valuations and comparable rents.
• Encourage tenants to propose what they consider a fair rent increase.
• Negotiate to reach a middle ground, resulting in sustainable rent growth without high turnover.

2. Leases Ending in Winter

Contrary to the common belief that leases should end in summer for higher occupancy rates, Dion prefers winter lease expirations to minimize tenant turnover. This approach aligns with his goal of maintaining long-term tenants, thereby reducing the frequency and cost of tenant transitions.

Quote:
"I want the least amount of tenant turnover because I was working full time, raising three kids."
— Dion McNeely [21:10]

3. Avoiding Properties in Good School Districts

Dion deliberately avoids investing in properties located in good school districts to minimize tenant turnover. He found that tenants in these areas are more likely to move due to their children's educational transitions, which can disrupt long-term occupancy.

Quote:
"I do not want to own a rental property in a good school district ever."
— Dion McNeely [23:56]

4. 100% Real Estate Focus: No Diversification into Other Asset Classes

Influenced by Charlie Munger's philosophy, Dion has chosen to concentrate solely on real estate, believing that mastering one asset class is more effective for wealth building than diversifying prematurely. He emphasizes deep knowledge and strategic diversification within real estate itself rather than branching out into stocks or cryptocurrencies.

Quote:
"I'm 100% focused on real estate. I had to master one asset class before considering diversification."
— Dion McNeely [24:10]

5. Ownership Structure: Eschewing LLCs

Despite common practices among investors to use Limited Liability Companies (LLCs) for asset protection and liability management, Dion owns all his properties in his personal name. He cites reasons such as avoiding additional costs for forming and maintaining LLCs, preventing potential rent control implications, and simplifying tax write-offs.

Quote:
"None of my properties are or ever will be in an LLC."
— Dion McNeely [33:05]

Discussion on Rent Control and Market Strategies

Dion expresses strong opinions against rent control, arguing that it inadvertently benefits landlords while disadvantaging tenants. He contends that rent control can lead to increased profits for landlords and heightened tenant homelessness, as it restricts the ability to adjust rents in response to market changes and unforeseen expenses.

Quote:
"Rent control makes landlords stupid rich and makes more tenants homeless."
— Dion McNeely [41:12]

He underscores the importance of proactive strategies, such as his Binder Strategy, to navigate regulatory changes and maintain financial stability without relying on restrictive measures like rent control.

Philosophies on Portfolio Size and Cash Flow Management

Dion advocates for maintaining a manageable portfolio size to ensure high cash flow per unit and minimize management time. His approach focuses on acquiring a limited number of high-performing properties rather than expanding to a vast number of rentals, which can dilute cash flow and increase complexity.

Quote:
"My goal was the right amount of cash flow from the least amount of units."
— Dion McNeely [09:05]

He emphasizes the psychological shift required to transition from saving and reinvesting to enjoying the fruits of his labor, highlighting the challenge of balancing frugality with lifestyle desires in retirement.

Final Strategies and Closing Thoughts

6. Minimal Value-Add Investments

Dion deliberately avoids extensive value-add projects like the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method. Instead, he prefers properties that require minimal maintenance and incremental improvements, allowing him to focus on scalability and passive management without the intensive effort typically associated with major renovations.

Quote:
"I invested for 10 years without ever doing one rehab."
— Dion McNeely [44:36]

7. Strategic Diversification Within Real Estate

Rather than diversifying across different asset classes, Dion diversifies within his real estate portfolio by targeting a mix of tenant types: military personnel, Section 8 recipients, and working or retired individuals. This internal diversification mitigates risks associated with economic downturns, policy changes, or sector-specific disruptions.

Quote:
"I want about 1/3 military, 1/3 Section 8, and 1/3 working or retired."
— Dion McNeely [25:10]

Conclusion

Dion McNeely's unconventional strategies challenge traditional real estate investing norms, demonstrating that financial freedom can be achieved through thoughtful, deliberate portfolio management rather than sheer volume. His focus on tenant satisfaction, strategic property selection, and disciplined cash flow management serves as a blueprint for investors seeking sustainable income with minimal overhead.

Key Takeaways:

• Tenant-Centric Approaches: Empowering tenants to propose rent increases fosters loyalty and reduces turnover.
• Seasonal Lease Structuring: Ending leases in winter can lead to longer tenant retention.
• Selective Property Acquisition: Avoiding high school district properties minimizes tenant turnover.
• Focused Asset Class Mastery: Concentrating solely on real estate enhances expertise and investment returns.
• Simplified Ownership Structures: Owning properties personally can reduce costs and regulatory complications.

Dion's journey underscores the importance of aligning investment strategies with personal goals, risk tolerance, and lifestyle aspirations, offering valuable insights for both novice and seasoned real estate investors.

Notable Quotes with Timestamps

• "I made every mistake I could think of. I tried to do it without a lease."
  — Dion McNeely [02:10]

• "I don't raise the rent, my tenants do."
  — Dion McNeely [15:28]

• "I do not want to own a rental property in a good school district ever."
  — Dion McNeely [23:56]

• "I'm 100% focused on real estate. I had to master one asset class before considering diversification."
  — Dion McNeely [24:10]

• "Rent control makes landlords stupid rich and makes more tenants homeless."
  — Dion McNeely [41:12]

This summary encapsulates the key discussions and strategies shared by Dion McNeely, providing actionable insights for listeners aiming to optimize their real estate investments while achieving financial independence.