Making $8K/Month and Quitting His W2 with 2025’s Ultimate Cash Flow Strategy

Summary

Real Estate Rookie: Making $8K/Month and Quitting His W2 with 2025’s Ultimate Cash Flow Strategy

Hosted by BiggerPockets featuring guest Miller McSwain

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Introduction

In the April 23, 2025, episode of Real Estate Rookie, hosts Ashley Kerr and Tony Jarrett Robinson welcome back Miller McSwain, a seasoned real estate investor who successfully transitioned from a traditional W-2 job to managing a lucrative co-living portfolio. This episode delves deep into Miller’s cash flow strategies, market selection, property management, and the nuances of scaling a co-living investment approach.

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Guest Background and Portfolio Evolution

Ashley Kerr kickstarts the conversation by highlighting Miller's proven strategies in maximizing cash flow through co-living and house hacking. Miller shares his journey since his last appearance, emphasizing a strategic pause in acquisitions to optimize existing properties.

Miller McSwain [01:24]:
"We haven't bought anything in the last three or four months. Instead, we've been focusing on optimizing what we have to ensure everything is up to speed."

Miller explains that while they remain under contract for new purchases, the primary focus has been on enhancing income from current properties by converting unused spaces into additional bedrooms, thereby increasing overall profitability.

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Authorship and Contributions to BiggerPockets

Miller announces the completion of his co-living book, set to release through BiggerPockets. This publication aims to provide comprehensive insights into high cash flow strategies within the co-living sector.

Miller McSwain [02:29]:
"I've written the Co Living book now and it is coming out with Bigger Pockets. Visit colivingbook.com for a 25% off deal."

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The Rise of Co Living: Trends and Regulatory Landscape

Tony Robinson poses a critical question about co-living being a burgeoning trend in 2025. Miller concurs, positioning co-living as the latest in a series of cash flow strategies that gain popularity over time.

Miller McSwain [03:12]:
"Co living is definitely the hot one right now, right after short-term and mid-term rentals."

Miller discusses the regulatory environment, contrasting co-living with short-term rentals. While short-term rentals face increasing restrictions in urban areas due to their impact on housing affordability, co-living benefits from more favorable regulations as it offers cheaper housing options for locals.

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Market Selection for Co Living

Miller outlines critical factors in selecting profitable markets for co-living investments:

1. Regulations: Assessing local laws to ensure co-living is permitted and understanding any limitations on the number of unrelated tenants.

   Miller McSwain [06:06]:
   "Cities like Washington, Oregon, and Colorado have passed statewide legislation preventing cities from setting restrictive regulations on co-living."

2. Supply and Demand: Evaluating the rental affordability by comparing room rents to local incomes. High rental unaffordability indicates a strong demand for cheaper housing solutions like co-living.

   Miller McSwain [09:28]:
   "Look at rental unaffordability and the room rent to price ratio to gauge demand and profitability."

3. Population Growth: Using population growth as a predictor for future property value and rent increases, ensuring long-term investment viability.

   Miller McSwain [10:32]:
   "Population growth infers what property values and rents could do in the future, making it a vital indicator for market selection."

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Property Acquisition and Renovations

Miller emphasizes the importance of partnering with real estate agents knowledgeable in co-living. He advises leveraging BiggerPockets’ community resources to find specialized agents.

Miller McSwain [15:18]:
"A good real estate agent who knows about co living can significantly aid in finding and optimizing properties."

Key Property Features for Co Living:

1. Ample Parking: Essential to prevent neighborhood friction and comply with HOA or city regulations. Larger lots or properties with multiple driveways are preferred.

   Miller McSwain [19:15]:
   "You definitely do want to look for ample parking to avoid neighbor disputes and maintain a good relationship with the community."

2. Square Footage: Larger properties offer more flexibility in adding bedrooms without being constrained by existing layouts.

   Miller McSwain [19:55]:
   "The bigger the property, the more opportunity there is to add bedrooms and increase efficiency."

3. Room Conversion: Converting unused spaces like basements or garages into bedrooms enhances income potential.

   Miller McSwain [25:18]:
   "Converting garages to bedrooms without sacrificing parking can significantly boost cash flow."

Renovation Best Practices:

• Permits and Codes: Ensuring all modifications adhere to local building codes, including adding necessary egress points and ensuring electrical and lighting standards.

  Miller McSwain [23:05]:
  "Make sure you have two forms of egress and meet all safety and code requirements when adding bedrooms."

• Community Spaces: Retaining communal areas like living rooms to foster a sense of community among tenants.

  Miller McSwain [28:41]:
  "We always keep a living room and add features like porches to encourage community interaction."

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Managing Tenants and Building Community

Building a harmonious living environment is pivotal in co-living setups. Miller identifies two "holy grails" for success:

1. Screening Tenants: Rigorous screening processes, including rental references and community interactions, ensure compatibility among tenants.

   Miller McSwain [41:52]:
   "Screen well by checking rental references and conducting vibe checks during tours to maintain household quality."

2. Fostering Community: Organizing events and providing communal spaces helps tenants build relationships, reducing conflicts and enhancing tenant retention.

   Miller McSwain [28:41]:
   "Community events like bowling nights significantly reduce tenant conflicts and improve management efficiency."

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Financials and Cash Flow Management

Miller discusses the financial aspects of co-living, highlighting the importance of detailed financial analysis and leveraging tools like BiggerPockets’ calculator.

Miller McSwain [31:33]:
"Use the Bigger Pockets calculator to ensure you don’t overlook any financial inputs when evaluating a property."

Key Financial Strategies:

• Rent Calculation: Utilizing platforms like colivingpro.io to determine competitive room rents based on local data.

  Miller McSwain [31:33]:
  "Use colivingpro.io rent calculator or check listings on Zillow and Facebook Marketplace to determine appropriate room rents."

• Managing Expenses: Accounting for utilities, cleaning services, and shared supplies, which are typically covered by the landlord in co-living arrangements.

  Miller McSwain [31:33]:
  "You will be paying for utilities and possibly a cleaner, but the increased income from room rents justifies these expenses."

Cash Flow Example:

Miller shares an example from Colorado Springs, illustrating substantial cash flow post-renovation:

Miller McSwain [33:26]:
"We invested around $12K-$15K in renovations and now produce approximately $2,000 a month in cash flow from an eight-bedroom house."

He emphasizes the high cash-on-cash returns achievable through strategic investments and renovations, even in higher interest rate environments.

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Tenant Retention and Lease Management

Miller highlights strategies to enhance tenant retention, such as offering lease options that incentivize longer stays.

Miller McSwain [39:38]:
"Most tenants opt for 12-month leases with small discounts, ensuring steady occupancy and reducing vacancy periods."

By providing flexible lease terms and incentives for longer commitments, Miller minimizes turnover and maintains consistent cash flow.

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Conclusion and Key Takeaways

Miller McSwain’s insights offer a comprehensive blueprint for aspiring real estate investors looking to delve into co-living. Key takeaways include:

• Market Selection: Prioritize markets with favorable regulations, high rental unaffordability, and strong population growth.
• Property Optimization: Focus on properties with ample space and parking, and strategically convert unused areas into income-generating bedrooms.
• Tenant Management: Implement rigorous screening processes and foster a strong sense of community to enhance tenant satisfaction and retention.
• Financial Vigilance: Use specialized tools to accurately assess financial viability and manage expenses to maximize cash flow.

Miller’s approach underscores the potential of co-living as a robust cash flow strategy, equally balancing profitability with community building.

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Connect with Miller McSwain

For more insights and to access Miller’s upcoming co-living book, visit colivingbook.com for a 25% discount. You can also reach out to Miller directly on Instagram @MillerMcSwain for personalized advice and further information.

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Thank you for joining this detailed exploration of co-living strategies with Miller McSwain on the Real Estate Rookie podcast. Tune in next time for more actionable real estate investing tips and success stories.

Transcript

[Ashley Kerr]

If you're looking to maximize your cash flow in today's real estate market, our returning guest has proven that house hacking and co living are not just trends. They are real strategies that deliver serious returns. Today, he's breaking down exactly how you can find, manage and scale this unique investment approach from the ground up.

[Tony Jarrett Robinson]

That's right. Last time Miller was on the show, he gave us a snapshot of his co Living success. He quit his W2 to scale his real estate portfolio and today he. He's kind of pulling back the curtain on his entire process, from market selection to tenant management and so much more. So if you've been curious about co living but you weren't sure where to start, this is the episode you've been waiting for.

[Ashley Kerr]

Even if co living isn't your preferred strategy, Miller has so many universal tips on analyzing markets and managing tenants that you won't want to miss his expertise here. This is the Real Estate Rookie Podcast and I'm Ashley Kerr.

[Tony Jarrett Robinson]

And I'm Tony Jarrett Robinson and Miller McSwain. Welcome back to the Real Estate Rookie Podcast.

[Miller McSwain]

Yeah, thanks for the invite back. This is a second time. So not a two timer. I think that's kind of a bad thing, but we'll just say it's like I'm a second timer. Maybe that sounds a little better. So, yeah, thanks for the invite back, guys.

[Ashley Kerr]

Okay, Miller, so it's been about four, five, six months since you've last been on the show. How has your co living portfolio evolved?

[Miller McSwain]

Yeah, so we actually haven't bought anything in the last three or four months. Instead, we've been focusing on kind of optimizing what we have. Not to say that you can't buy them now. We just wanted to take a little bit of breathing room to get everything that we have totally up to speed. So we are still trying to buy. In fact, we're under contract on one right now. But we just really tightened up our requirements to give us some breathing room to work on what we currently have. So it's like, yeah, if a fantastic deal does fall in our lap, let's work on it. But in the meantime, what we're doing is looking at the properties that we purchased previously, especially earlier on in our, in our co Living journey. And we're looking at spaces that we can optimize and increase the income on the properties that we currently have. So that's like the very first property that we bought. There is an extra family room that we never touched because we never considered converting the extra space to a bedroom. So we're doing things like that now. Some garages that, that are attached that are like extra 500 square feet. We're working on doing some conversions like that right now.

[Ashley Kerr]

So, Miller, you've also been pretty busy with a special project for Bigger Pockets. Can you tell us about that?

[Miller McSwain]

Yeah, so last time I was on, I said I was writing a Co Living book. I'm happy to say I've written the Co Living book now and it is coming out with Bigger Pockets. I, I think it'll be out when this episode drops. So if anyone is interested in getting this high cash flow that we'll be talking about today, you can go to colivingbook.com and we actually have a 25% off deal there that'll redirect you to the Biggerpockets bookstore. So super excited for people to get it in their hands.

[Ashley Kerr]

Yeah. Congratulations, Miller.

[Miller McSwain]

Thank you.

[Tony Jarrett Robinson]

So, Miller, some might say that Co living is like one of the hottest new trends of 2025. And I know Ashley and I have talked about it a lot on this podcast as well, since interviewing you and some other guests. So what do you make of Co Living kind of having its moment right now? And why do you think it's. It's a strategy that so many people are starting to get excited about.

[Miller McSwain]

You're right, it is definitely the hot one right now. Like, like, right. Short term rentals were super hot for a while, and then midterm, and then now it's co living. So a lot of strategies kind of go through this like, really hot phase. I think whenever I think about strategies, I think about three things. Whenever you're considering which strategy to, to commit to. So there's a lot of things that you could think about, but I think about regulations, then I think about supply and demand. So regulations tell you, right? Does the, does the state or the city even allow you to do this? If they do, how easy do they make it or how hard do they make it? And then the supply and demand kind of tells you how, how profitable is this strategy? Like, is it even worth pursuing? Even if the city lets you do it, is it worth doing? So if I kind of compare Co living to short term rentals, I think it would be a really good example. So as far as the regulations go, short term rentals, you know, in 2015, right. You could do short term rentals in cities and vacation markets and rural areas, like, whatever. Right. Like it's. The city didn't know anything bad or good about it. It was just like, yeah, you're allowed to do it because there's no regulations against it. Over time, right. We've seen that it still works super well in vacation markets. Right. It's still a phenomenal strategy for the Smokies and what Tony talks about in like Joshua Tree and all that, still super favorable regulation wise. But in cities it's a little bit of a different story. So like in places like Denver and I don't know, there's Texas markets and all sorts of markets are starting to come out with or already have regulations that do limit it short term rentals within the city. And the reason for that is just that it does. The short term rental strategy does convert housing that was meant for long term families that live in the city to housing for tourists and great. That can produce cash flow and everything. But that does drive up costs for the locals. So that's just kind of the thinking behind that. Regulation again, works great in vacation markets, but on the, on the other side with co living, when you think about regulations, things are actually swinging the other way. There's more, more and more favorable regulations because it does provide cheaper housing for locals. Right. So whenever you elect a mayor or you elect a governor or whatever, the people who are voting probably want cheaper housing. Right. So that's kind of why it's leaning more favorably on the regulation front. So then if we dive into supply. So I guess I'll say a little bit of a negative on regulations for STRs and cities and a little bit of a positive for co living in cities.

[Tony Jarrett Robinson]

Let me ask really quick before we go to supply on the regulation piece, because I agree, I think that the regulatory landscape in the short term rental industry has changed significantly and there are a lot of folks, I think, who have kind of gotten themselves in the hot water by not really understanding the regulations before they buy something. So if I, if I want to pursue the co living strategy, I guess what should I be looking for from a regulatory standpoint to know that this city actually supports or is, is encouraging of this co living strategy?

[Miller McSwain]

Yeah, very, very good question. So the biggest thing that you want to look for, right? So what you can find is that cities or states could have regulations that say you can only have a single family house is considered five unrelated people or less or three unrelated people or less or eight unrelated people or less. So that's usually the potentially limiting regulation. Some cities will have that and then some won't have a regulation against it at all. But you'll definitely check to see if it does. And so there are cities that are not favorable. So I don't want to say every city is, I'm just saying it's trending towards doing that. But for example, a lot of people are getting cracked down on pretty hard in Fort Worth, Texas who are doing co living and it was against the regulations there but you know, they're like ah, you know the, the city doesn't actually enforce it so you know, we'll go for it. Well, turned out not to be a good idea in Fort Worth. And there's a, a Florida market that I'm thinking of that's the same way. But there's states like Washington State, Oregon state, Colorado that have passed statewide legislation preventing cities from setting those sort of regulations. And then there's other cities and states that just don't have them. So like Houston doesn't have any regulations against that. But that's the sort of law that you would want to look up and it's really hard to Google. So unfortunately you probably have to email the, you know, the zoning office, the planning office to kind of get your.

[Ashley Kerr]

Answer and definitely have get it in writing too if you are going to contact them directly. So it's not a phone call and later on you have to say well this person that I talked to, but you have no evidence of that if it becomes a problem. So I guess Miller, a follow up to that is short term rentals. There was no regulation in a lot of areas and then there was regulation. Do you think there is, you know, that's something to be aware of with co living that you should be aware of how regulation can change that if this does become such a saturated strategy and become more popular that you could be at risk of that.

[Miller McSwain]

I mean, yeah, sure it's good to be aware of but I don't foresee more regulations being put on it that are anti co living. Right. So like with short term rentals it's not like there were rules against it and then people took them away. It's like no, no rules were put in place to prevent it. So that could be a possibility. But when you do, when you do break down the supply and then specifically the demand, there is a lot of demand for this strategy and like I said, it serves a different purpose. You're trying to lower housing costs for, for locals. So in particular that's, I think what makes it very defendable legislatively and regulate and regulatory is just that it does provide that lower cost of housing versus you know, doing the opposite and just making investors money. It's a win win if you're in an hoa yeah, I see that being very, very likely. Right. If you're buying in an HOA and yeah, it doesn't have good parking and so all of a sudden you're parking in front of the other people's houses and all that. Yeah, they're going to get mad and they're going to put new regulations in place and that's not great. So you do have to be careful where you buy. But I think that's harder and harder to do at the city level when you have a mayor that's serving. Yeah, some NIMBY people, but then also some people who need the affordable housing and then, you know, and then people in the middle who care about either way, it gets much harder for them to put such regulations in place that make things more expensive the larger you go up. So at the level, I think that definitely could happen.

[Tony Jarrett Robinson]

So regulations are big. Right. And I think that's one thing to look for as rookies are thinking about what market to go into. But I guess, Miller, what. What other kind of key indicators should we be looking at to evaluate a market's worthiness when it comes to co living?

[Miller McSwain]

Yeah, so a big one is demand for the room rentals. Right. The best way that I've found to kind of infer, kind of estimate what the demand is in the city is looking at the rental unaffordability there. Right. So if there is, if there's people in the market that don't make a lot of income and their rentals are also expensive at the same time. So it's like, hey, I don't make a lot and I have to spend a lot of what I make on the rental. Then all of a sudden there's a huge opportunity to come in and provide something that's cheaper so that they can get their financial house more in order. Right. So they have more money to save or do whatever they want to do with it, but it's not all going towards housing anymore. So that's an awesome indicator that you can look at piece of data and the way that you would get that is look up the studio rents in a market. So you can do that on apartments dot com. That's a super easy place to do that. And then you can look up the salary for an individual in an area and I usually go to pay scale for that. So whenever you divide those two, it's like the more, the higher that is, it means the more unaffordable it is for, for the typical renter there. So there's likely more demand for the Rooms. Yeah.

[Tony Jarrett Robinson]

As a follow up to that, like, do you see that this strategy works better in like major metros? You know, like I'm in Los Angeles, right, One of the most unaffordable places to live, right. Or New York City. Does it work better in a city like that or is it better in maybe like a smaller suburban or even rural town?

[Miller McSwain]

Yeah, great, great question. So yeah, I think there could be more demand, right, in like the Los Angeles, the whatever because of, because of how expensive the rents are in comparison to the income. But the other thing that you have to take into consideration is how expensive are the houses, right? So I'm sure there it's, you know, extremely expensive versus if you're looking in, you know, a town with 450,000 median purchase price, maybe there's a little bit less demand there, but maybe the house is like a third, a fourth, a fifth, a sixth of the cost. So another good indicator or a piece of data that you can look at is the, the room rent to price ratio, right? So that's another one that you should consider. So if you've heard of the 1% rule, right, that's essentially what is, what does this property rent for as a long term rental and then divided by how much does this property cost? So you can essentially do that with room rentals, with co living properties, but instead you're just dividing the room rent in that market by the, by the purchase price. So the higher that is, the more bang for your buck. So if you have those two pieces of data, you can kind of, you know, weigh them however you want to, but they can give you a good picture of whether this would be a good co living market or not. One other piece of data that you can look at that I really like is population growth. So right, you can, you can look at historical appreciation and historical rent growth and all of that, but that's, it's a little bit dangerous because if you see that a market has grown by 10% per year in property value, like that sounds cool. It's like, oh, I would love to get in and also reap this, you know, 10% per year increase. But it, it may have already gotten all of that appreciation and maybe now you're just stuck at the top of the market and it goes down or it just doesn't continue to go up. So instead what I like to look at is population growth because I think it predicts, it infers what property values and what rents could do in the future. Right? Because if you have a certain number of properties for sale in a market and now more and more people are moving there. All of a sudden the people who are selling the properties can jack up the price because so many people want them in the same same idea on the rental side. So the higher the population growth, the higher you could expect property values and rents to go up in the future. So that's another one to throw in there that could really make a awesome just investing market in general.

[Ashley Kerr]

We have to take a quick break and Miller has shown us how to identify some markets. But how do you find the right property once you've chosen your location? So up next he reveals his exact criteria for selecting properties that convert successfully to co living spaces. But first, a quick message from our sponsors.

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[Tony Jarrett Robinson]

All right guys, welcome back. So we've seen how Miller is identifying markets for the co living tragedy but I just want to dive into Miller how exactly you're finding these deals. That makes sense. So I guess what, what kind of specific features do you look for in a property that would make it ideal for co living? Like are, I guess are there certain things, you know to look for now that you didn't quite know of when you first started?

[Miller McSwain]

Yeah, there's a lot of them. I think the very first thing I would say is like you need a really good real estate agent that is, that knows about co living. Right. So in a perfect world if you could find a co living specific agent, they're going to help you so much with this.

[Tony Jarrett Robinson]

No, I know that there's like agents who specialize in house hacking but like is, are there agents who like hey all we do is like help agen with or investors with co living.

[Miller McSwain]

Yes. Yeah, there's, there's definitely starting to be. So I think if you're in a city with like 400,000 people or more than I've then I have been able to to find co living specific agents there. Right. Just like there's short term rental agents and yeah, like you said house hacking and all that, if you're in a market smaller than that, it is less likely to find someone super specialized in it right now because, because the strategy is in its infancy, in its modern infancy anyway. Like right, it's existed for a long time but it's becoming more popular now. So if you are in a larger city, like I said 400,000 or more, you could probably find someone. I would check out biggerpocket's forums and search Houston, co living, Denver co living, whatever and maybe you find some posts about it. Maybe you message the people who made the posts and asked who they used as their agent. You could look in the BP rookie Facebook group, you could DM me. I know agents all over the country that do specifically co living. So first I would definitely try to find one of those because they're going to know the areas that are best for co living. They're going to know about these features that we're about to talk about. But if you can't find one then maybe just the next best thing is a cash flow strategy agent. So someone who's done short term rentals or done midterm rentals, again they're really different but at least they're kind of Aligned in this cash flow, thinking it's probably the best the closest you could get.

[Ashley Kerr]

You can also go to biggerpockets.com agent finder, and when you're matched with an agent from your area, let them know that you're looking to do co living. And one way you can ask them to see if they actually are specialized in co living is asking them, how many people have they helped purchase a home for co living? So they actually have to give you a number instead of just asking them, you know, have you helped people do co living before? Then they just say, yeah, oh yes, I have. And maybe it was just one person. But you ask it that way. They have to, you know, if somebody really has done a lot of co living deals, they'll be able to say, oh, Yeah, I did 10 just last year helping someone. So a great way to freeze up.

[Miller McSwain]

Yeah. And you can, you can definitely ask. So first off, everyone will say that they've done it. They're like, oh, yeah, of course. So, because of course they're salespeople, right? But if you've read the book or listened to this podcast or whatever, you can ask questions to kind of figure it out. So you could ask them about these features. So parking is a big one, right? So you could ask them about parking, like, oh, you know, how many parking spots you usually see your clients buy, like for co living, or what are the remodels usually look like for co living. And like, if they say something about, oh, yeah, you know, building a room in the unfinished basement, you know, the extra family room, converting that to a bedroom, then, okay, they do at least know what they're talking about a little bit. But I will say, when you do have this agent and you start digging down into specific properties that you're looking at, the first and quickest thing to look at is parking, right? You can hop on Google Maps, you know, turn it onto the satellite view, or hop down on the. On the little yellow man doing the. Doing the street view. And you definitely do want to have a lot of parking because exactly what we mentioned earlier, you don't want to make the neighbors mad, Right? Technically, it might be okay. It might be allowed to park, you know, wherever in front of other people's houses. But we're definitely not trying to give the strategy a bad stigma and, yeah, induce any regulations with the hoas or even at the city level or whatever. So you do want to look for ample parking. So that's things like corner lots. That's things like, we have some that are Just really wide like wedge shaped lots. So there's just a ton of front street parking. It could be. There's, we've seen some with like driveways that go into the backyard and then there's like a parking pad back there. There's a lot of different ways that you could find parking, but it's not a house sandwiched in by five other houses on every side of the street and you just have a two car garage. Like that's not going to cut it.

[Ashley Kerr]

Miller, I'm curious, have you ever like gotten rid of the backyard to create more parking and added just a big huge parking lot in the back?

[Miller McSwain]

You totally could. We have. Not all of ours have been had good parking from the start, but yeah, I mean if deals started to get tighter and tighter and tighter, you know, you get more creative. So it's like yeah, if the side yard is big enough to add like a driveway through the, through the fence and then you build a parking pad. Cool. I have heard of people like graveling the front yards. You know, maybe it just depends on the market. That would be something that would definitely make my neighbors mad. You know, depends on the neighborhood and everything. Right. So you know, but definitely keep the neighborhood in mind while you're at it.

[Ashley Kerr]

So what are some of the other things we should have in our buy box when going after a co living property?

[Miller McSwain]

So once you have identified whether parking works or not, now you can dive in and look at a few other things. So you can look at things like property square footage. The, the bigger the property the better. Right? Because if you think about a, let's just say like a 1500 square foot house that's like, that's three bedrooms. Let's say you have a kitchen, you have a living room and then you have three bedrooms and like that's probably it. Now any additional square footage you add beyond that. So let's say that instead you find a 2,500 square foot house. That's five bedrooms. Okay. Well every piece of additional square footage for the most part goes to building bedroom type area. So. So you're, you just get much more efficient with the floor plan that the more square footage, the more opportunity there is to add bedrooms once you've looked at the square footage. Notice that I didn't say anything about filtering on bedroom count. So you're probably not going to find a six bedroom house in a market. Or maybe you could, but you're probably not going to find a seven, you're probably not going to find an eight. Like the highest that we have right now is eight. Right. You're not going to find those. So we've bought properties that are huge. 3,000 square feet. 3,300 square feet, but only have three bedrooms. So it's really great because no one else wants to buy that. By the way, no family wants to buy a 3,000 square foot house with only three rooms. Like, they probably have three, four kids. They need more rooms than that. So you're able to kind of negotiate on them. And then once you buy it, you know, we finish the basement, we turn the dining room, we turn the, you know, whatever, the game room, the theater. So I would not filter on bedroom count. That's where your expertise as a co living investor comes in and you're able to do things that other investors or homeowners don't.

[Ashley Kerr]

Miller. I guess on that point of the bedroom counting, converting rooms to bedrooms, what is actually, is there a permit process you're following to that when you go to resell it? It's now an eight bedroom. Do you have to put a closet in each one? What are the things that you're actually doing to convert them to bedrooms?

[Miller McSwain]

That's where it gets kind of weird, right? Because it's like, okay, if I'm buying this giant house, like I said, 3,000, 3,300 square feet, and I'm making it eight bedrooms. Yeah. When I go to sell, who's going to want to buy this? Right, like that, that, that looks great and it produces a lot of cash flow, but who's going to want to buy this thing? So, you know, it's up to you as the investor. But I will say, if you're doing like a permanent, a permanent modification, like a permanent addition, like we've done things like extend a balcony on the interior to add like 200 square foot of living space that we turn into a bedroom. We've done things like, yeah, finished basements. Right. Like these, like sort of permanent additions you probably do want to have in that listing when you go to sell it in 10 years. Like, oh, yeah, now there's an extra 200 square feet. Now there's an extra thousand square feet in the basement. And it went from a four bedroom or a three bedroom to a five bedroom. Like that looks great. Whenever you go to sell, there are some, like, more temporary modifications that you do. Though of course, I'll say you should always do everything to code. Like, no matter what, things should be safe, things should be clean and all of that. So this isn't necessarily advice, but there are more Temporary modifications, like adding a door to an office, you know, like, okay, now it's a bedroom or a dining room.

[Ashley Kerr]

Like when you're co living, do you really need a dining room?

[Miller McSwain]

Yeah. So for those sort of things, you know, maybe it's, you know, it's up to you on those. Yeah.

[Ashley Kerr]

Okay, so we've went through a couple things. Is there anything else that we need to really consider for our buy box.

[Miller McSwain]

As far as building a bedroom goes? Like you asked about, what do you need in a bedroom? So it varies by city, varies by state, but generally you're going to want a closet like you said. And the other big requirement is having two forms of egress. So this is along those lines of safety. You know, if there was a fire in the house, which, you know, you could totally build bedrooms without the proper egress. But if you do this at scale, eventually there's just gonna be a fire. Like if you have 20 properties, one of them's gonna catch on fire one day and you do not want to be stuck holding the bag. Right. So you definitely want to make things safe. So usually you need two forms of egress. One of them has to be to the exterior. So the, the door to enter the room. Right, that's one form. That's great. The other form needs to have some exterior access. So that would be things like a window, like a door even that goes to the exterior. Like if you converted a garage and there's a. Another door that goes straight to the backyard, like that could potentially count. So make sure you have the closet, make sure you have the two forms of egress, and you know, make sure you have the appropriate electrical outlets and lighting. And it's not super small, things like that.

[Ashley Kerr]

So, Tony, I know what you're thinking. You were going to turn your walk in closet, rent it out, but that won't pass the legal bedroom.

[Tony Jarrett Robinson]

So from, from a renovation standpoint, Miller, are there, are there any other, I guess, priorities you started to focus on? I mean, you've been doing this for a while now, so I'm sure you've. Maybe there were things you weren't doing initially that you're like, hey, we're going to do this every single time now. But just from a, from a renovation standpoint, how have priorities kind of changed for you?

[Miller McSwain]

Yeah, they've changed a lot. So in the beginning, our very first house hack, so I should say this is a fantastic house hacking strategy. Right. Whenever you're house hacking, you're buying a property and you're Just renting it, renting pieces of it out in some way. Like you're making money on it somehow. So you could, you know, short term part of it, you could midterm part of it, or you could rent out the rooms. And so this is co living is fantastic for house hacking, right? So whenever we bought our first house hack, it was a, it was a flip. It had like just been flipped and we're moving into it now and it, we didn't do anything to it. It was like, yeah, it's a five bedroom house and it broke even. Like whenever we left, it would break even. And that's all we knew how to do. It's like, oh, if it breaks even, that's a good investment. Like that's what we were kind of hearing at the time. Since then, now we cash flow a lot, you know, enough to where like we can actually replace our incomes and do all of that. And that's because we did start getting creative with those floor plans. So the, the biggest recent, you know, tools in our tool belt, beyond the simple ones like the dining rooms that we've been talking about is the garage conversion. That, that's the big one. Right. We have multiple houses with three car garages. Like seriously, like 600, 500, 600 square feet just sitting there for cars. And now whenever we convert these, we're not taking away parking because it's still. You can park in the driveway, right? So where three people would have parked in the garage, you're just now parking outside. But you can add a lot of square footage and you know, add two rooms, you know, easily in something like a two, three car garage.

[Ashley Kerr]

I mean, I guess you could also charge for parking in the garage too. Like charge extra like if you want the premium parking spot, I guess. But then, you know, I guess you have to worry about people parking in the garage doors you can't get back out but. Or storage too. Like if you don't have it in your budget to actually renovate the garage, there are other things you can do too to make money off of it.

[Miller McSwain]

Yeah, originally that is how we utilize the garage. So. So like I said, we've just been optimizing recently. So previously we could rent each garage space for 100 and you know, let's say $100 a month. So three car garage, $300 a month. Awesome. That's great. Instead, if the house supports it, you know, if there's enough bathrooms. Right. Like there's just. We're not trying to just cram for no reason. It's like, oh, if we could reasonably fit three more people and the bathroom still makes sense and the kitchen's not overloaded with people, then all of a sudden, if we had two rooms, let's say now we're making an extra 1400amonth instead of 300amonth. So it really adds a lot to your cash flow if you invest into it.

[Ashley Kerr]

Yeah. There's something else I want to add that I recently came across with. I was talking to the guy from the health department that comes and does the septic and water testing on property. So I'm assuming most of your properties probably have, you know, public sewer, not dealing with a septic, but just in case there is someone who is considering a property that has a septic is that, you know, most septics are built to only support so many bedrooms by the bedroom count. So if you have a septic that you know only supports a three bedroom, but you're going to convert the basement into, you know, have a fourth or fifth bedroom, whatever that may be, when you actually go to sell the property, you will have a problem that you're selling it as a four bedroom house, but your septic only supports, you know, three, three bedrooms. And so he said that what a lot of people do is they'll list the property three bedroom with an office or with a den and then, then you know, the people come and see the house and like, oh, I could actually use this as a bedroom. But, but just something to be careful of too is make sure your utilities will support the bedroom count too.

[Miller McSwain]

Should your contractor know about that or should you talk to the city to know about that? How do you know if there's like an issue with the, with the utilities?

[Ashley Kerr]

Yeah. So I would call the, whoever does the septic and the septic inspections in your area and when you purchase a house there should always be, at least in New York you always have to have the septic inspected anyways. So before you're even closing on the house, you would find that information out.

[Tony Jarrett Robinson]

Well, one, one final question on the, on the renovation side. So do you leave any communal space aside from the kitchen? Like is there, is there typically still like a living room or like what communal space do you typically leave?

[Miller McSwain]

Yeah, so we definitely do. So I would define co living as community living and I would say that that is a room rental strategy with built in community. Right. And that's very difficult to do if you don't have any community space. So yeah, definitely we always keep a living room and we have, you know, porches outside you know, whatever. So people could hang out outside if they wanted to. But yeah, definitely have the community space inside. We've started adding on some new community like features and amenities. Things like the newest one that we're trying out is bowling night. So, you know, super cheap for us to pay for. It's like message the house, hey, anybody want to go do bowling on Friday? And I don't even, you know, it's like five or ten bucks a person or whatever, but that just gets them out of the house. So you could even do this if you didn't have community space. But I think it's great if you also have the community space. So there's little things like that to really help everyone form those relationships. But it really helps on the management side, it sounds like, oh, well, doing these community events would. Would be a drag on management. It's like, oh, now I gotta schedule these things and whatever. It cuts down on the issues that we experience by, by so much. Ever since we started doing this huge drop in inner tenant conflict because just now they know each other and they can chat about issues themselves. They're not, you know, texting me about the guy next door who's loud because they know that guy now, like, they've talked to him, they can just go knock on his door and speak to him directly. So it's helped out a lot on the management front.

[Ashley Kerr]

Miller, the last piece on this. Is there any little thing that isn't super expensive or requires a whole house remodel or anything like that that is unique that you found that your renters would actually really enjoy as an amenity? So, like, for example, having three fridges where, you know, each person gets half of a fridge instead of just one little tiny shelf. Or is there any little things like that that somebody can do to. That a tenant would appreciate and actually want to live there because of those little things?

[Miller McSwain]

Yeah, this isn't necessarily on the remodel side, but on the. Just on the experience side, I would say a really easy thing to do is to provide the shared supplies for the house. So we provide toilet paper, trash bags, paper towels. And so, for example, whenever we do like rent raises or anything like that, in that email I include, like, hey, don't forget, no one else does this. Like anywhere else you go, you're going to be paying an extra. You know, you're going to be paying for your toilet paper and paying for this and, you know, fighting with your roommates about it. So that's been an easy one where I think people immediately See the value, like as soon as they move in they're like, whoa, this is way better than any dorm I've lived in. This is, this is a different beast. Just because we provide those things that cost us $50 a month maybe nothing crazy.

[Tony Jarrett Robinson]

So we talked a little bit about the renovation side, but I guess the thing that comes to mind next is actually running the numbers and you touched on this a little bit earlier, but I guess how do you. How is the strategy for analyzing a co living property different than a traditional long term rental? And where have you found to go to get the best data to know what you can actually charge?

[Miller McSwain]

So it is similar to running the numbers for a traditional long term rental. Like so close in fact that you can use like I use the bigger pockets calculator. You know, I think that's a fantastic tool because it'll make sure that you don't forget any of your inputs. Right. Like whenever you go through that page it's going to remind you, hey, what are repairs and maintenance? Hey, what is capex? Hey, you know all of these things. But the difference is, you know you're still going to have your down payment, you're still going to have certain things. But the unique things about co living are one, the rooms are going to be, the rents are going to be different, right? You need to know what a room rents for. One quick way that you can find that this is sort of a plug because it's my thing. But if you go to colivingpro IO rentcalculator we have a essentially a rentometer or like Bigger pockets rent estimator but specifically for rooms you can go there and punch in your city and is it a room with a private bathroom with a shared bath? And we have like a lot of data at this point, so there's some estimates that we can give you. Otherwise you can go on Zillow, Facebook Marketplace and like comp to other rooms that are listed, right? So that'll be different, your rents will be different. Then there's some unique expenses that you'll have. So you will be paying for utilities. You're not going to do that with a long term rental, right. So you need to talk to the utility companies, figure out what that's going to cost or if you live in the market, you know, you probably know what it's going to cost. So you need to include that. You'll probably have a cleaner. Right? Like that helps again a ton. On the management side, we pay a little bit for it, you know, 80, 100 bucks a month is what we're paying but huge on the management side reduces the headaches if you do the shared supplies include that lawn care, basically anything that tenants would pay for in a long term rental you should probably be paying for in a co living rental yourself. And you make so much more income that it's totally worth it.

[Ashley Kerr]

So it's very similar than if you had a short, the property as a short term rental you're paying for a lot of those same things. So Miller, tell us what, give us an example of a property of how good is the cash flow?

[Miller McSwain]

The most recent one that we bought I guess I'll use because it wasn't like the higher interest rate environment. You know, like I said we, we haven't bought anything in three or four or five months. So. So the last one that we bought was probably more similar to what you could buy today since we're still you know at what like 7% or something like that. So this one was at like 7.5% interest I think. And even with that it's a, it's an eight bedroom house now I think we bought it as four or five and so we added the basement was finished but it was just totally open. You know, I think they called it a flex space or a, a game room or something like that. But anyway, totally untapped space. So we put up three walls total I think to make three rooms and that was it. So it was a super easy remodel like cost us 12 grand, 15 grand. You know, nothing extraordinary like a house hacker could put probably 20 grand down on this property and then spend an extra 10 or 15 or whatever building these rooms. And with that we produce like 2,000amonth in cash flow. I would say like to be like on the more like conservative side. Now that is a 25% down type situation. Right. So for rookies who are, who are house hacking and you're living there, I will say your cash flow would be lower. I don't know exactly what it would be on this but it would be over zero. You know, you're probably like 500 to a thousand by the time that you move out. But your cash on cash return would probably be stupid high, like 50. Like ours is 12% but if you put only put 5% down, you're probably at way higher than that. Right? 50% something stupid.

[Tony Jarrett Robinson]

Two quick follow up questions on that, Miller. What, what market is that property in?

[Miller McSwain]

Colorado Springs? So it's very median priced market. Like I think this one cost 500 and that's pretty Close to the median for the country, I think like 450, 460.

[Tony Jarrett Robinson]

And how long did your renovation take to take it from a 4 bedroom to an 8 bedroom or 5 to an 8?

[Miller McSwain]

This is my big learning lesson. The smaller the remodel, the better by far. This one was probably six weeks, like four, four to six weeks. And we had just come off of doing two much larger remodels where we went from the three to the eight. Which doesn't necessarily mean that it's a much bigger remodel. But it was just the way in which the property was laid out. It was a lot of work and took like three months. And that really sucked cash flow, right, for like three months. Not having that much occupancy was pretty tough, I guess.

[Tony Jarrett Robinson]

Last question, right. So like, how long does it take post rehab typically for you to fill all of your bedrooms? Like, are you, do you have like a waiting list of people just like knocking on the door while you're doing renovation, or is it, is it kind of like a lease up process where it takes a couple of months to get all those rooms filled?

[Miller McSwain]

Yeah, great question. That definitely is a disadvantage of co living is that pros and cons, it's like you have a lot of income streams. Like you have, you have redundant income streams. You know, you have, let's say eight people. One loses their job, one leaves in the middle of the night, whatever. Okay, eh, you know, it sucks a little bit. Second one leaves, okay, still sucks. But you're probably still, you're probably still positive cash flow by the time three or four of them leave. Okay, maybe now you're digging into reserve. But the flip side of that, the con of that is that you do have to get all of those filled up in the beginning. So that is the toughest part of co living, I would say. Depends on the market and how much demand there is. The market that I'm in. I didn't know all of this about market selection that I talked about today. Whenever we first purchased, we don't have the most demand that there. There are cities with way more demand than we have, honestly. So we do, we probably move slower than certain markets, but we can usually lease up about a room a week with no issue, like pretty naturally without pushing anything too hard. So eight bedroom house probably takes us about, you know, eight weeks or two months to get it totally filled up.

[Ashley Kerr]

I would say we have to take a quick break, but when we come back with Miller, I want to find out how long a tenant actually stays in the property and how often is he having to fill vacancies? We'll be right back.

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[Miller McSwain]

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[Ashley Kerr]

3 month plan equivalent to 15 per month required intro rate first 3 months only, then full price plan options available, taxes and fees extra. See full [e-mail] okay, welcome back from our short break. So Miller, you told us, you know, once you've got the property, it can take a week or so to get somebody in there. But how long on average are people actually staying? Are they signing one year leases? What does that look like?

[Miller McSwain]

Yeah, I will say that once you get the property filled up now, even if it takes a week to find someone, that's not such a big deal because you probably got a 30 day notice or a 60 day notice, you can probably get someone in there without so much lag. So that is a benefit there. But yeah, as far as how often they stay, what's the turnover like and all that, we've been seeing that our average is like 10 months. So on the leasing side, we'll let anyone sign anywhere from a 1 month to a 12 month and we just kind of adjust the pricing, you know, depending on how long they end up staying. So most people will pick a 6 month or a 12 month or a 12 month and it's leaning towards the 12. But one thing that we've done recently to really help our retention is that previously, whenever their lease would expire, we would automatically turn month to month. Super easy, super easy on the paperwork. Right? Like that was cool. It was great that we started that way because I didn't have all the time to look at all the paperwork and everything. Since what we do now is, okay, a few months out or two months out from their lease expiration, we'll now send them options. So it's like, okay, you could continue months to month. It will be a little bit more expensive because you have more flexibility to move kind of whenever you want. That puts us at a little bit of a disadvantage. So that is an option that they have or resign at 6 or resign at 12 months. And the pricing, you know, varies there. So I've been very surprised at what we found. We found that almost everyone signs a 12 month just to get that $20 a month discount or whatever it is. Instead of 800, it's now 780 total, total win. Win, right? It's like, okay, we make $200 less over the year, but all of a sudden we're not going to have a vacancy. And yeah, the room sits vacant for one week, right? That's 200, $300 gone. So reduces management headache and extends the stay and probably is better for the cash flow overall, even though there's a little bit of a dip in income.

[Tony Jarrett Robinson]

Last question, Rose. I think the one challenge a lot of folks have when it comes to co living is kind of just the idea of eight people being together and you've already touched a little bit on, hey, I'm going to buy the, you know, I'm going to buy all of your consumables. I'm going to pay for the utilities. We're going to assign parking spaces. I guess. What have you found, or what have you found to be like the holy grail of making sure that there's harmony amongst all of these random people that you're putting into a house together?

[Miller McSwain]

Two holy grails. One is screening, right? Make sure that you screen well. That's probably one of the biggest questions I get whenever people are looking to join the household. And I usually know that they're a good applicant if they ask this, but they're like, hey, how do we know that everyone in the household is good? How do you maintain the quality? And so it is because we, we definitely screen well. So that. So part of that is talking to rental references, right? Like, that's a huge piece. If they have like personal references that you can, you can require those or I don't know if you can technically require them or not, but you can definitely request those and talk to them, depending on the state. So you want to get an idea from the rental references how they've behaved, because a lot of these people have been in room rentals before. So you can get a good idea from that. Also, whenever they come to tour, we have the current residents tour them around. So there's like an immediate vibe check there. If it doesn't fit well, then I hope the person, you know, excludes themselves because you know, you want it to be a good vibe in the house. If they don't exclude themselves, the person who gave the tour will probably tell us that it didn't go well. So we'll get an idea from that. So that's one big thing. And then the second one I would say is the community piece. So I think that that is overlooked. Even if you do just, even if you do keep the living room and that's all you do, I think that that's not enough because that is what we did at first. Like, we kept the living room. We're like, hey, guys, you know, go hang out and just that initial connection was never made. So no one ever hung out, ever. No one ever talked. You know, they would say hey in the hallway and that's it. We found that we really do have to provide that just initial spark just a little bit. You know, here's, here's dinner, here's bowling. And then it goes and then it takes off from there and does is self sufficient after that. But we have to provide that spark is what we found.

[Ashley Kerr]

Well, Miller, thank you so much for joining us today. Can you let everyone know where they can reach out to you and find more information?

[Miller McSwain]

Yeah. If anyone has questions, feel free to DM me on Instagram. Just Miller McSwain. It's my name. Yeah. And if anyone's interested in the book, like I said, coliving book.com 25% off there and you can pick it up from the BP bookstore.

[Ashley Kerr]

Yeah. And congratulations again on writing your book. I can't wait to read it. Thank you guys so much for joining us today. I'm Ashley and he's Tony. And we'll see you on the next episode of Real Estate. Ricky.