How A Dietitian Bought 377 Apartments Without Investors | Tony Stephan E527

Summary

The Rich Somers Report

Episode Summary: “How A Dietitian Bought 377 Apartments Without Investors | Tony Stephan”

Host: Rich Somers
Guest: Tony Stephan
Episode #527 | July 22, 2026

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Episode Overview

In this episode, Rich Somers sits down with Tony Stephan, a registered dietitian who, together with his wife, acquired a portfolio of 377 multifamily units—entirely without outside investors. They explore actionable multifamily investing strategies, the importance of active management, creative ways to force appreciation, and how “imperfect action always beats standing still.” Both self-made in their real estate careers, Tony and Rich offer concrete, hands-on insights for anyone looking to launch or scale in the multifamily game.

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Key Discussion Points & Insights

1. Multifamily Fundamentals vs. Residential (01:00–04:23)

• Myth-Busting Multifamily:
  • Many assume 1–4 units qualify as multifamily—Tony stresses these are residential assets valued strictly on comps, not on the Net Operating Income (NOI), making true multifamily (5+ units) fundamentally different.
  • Tony: “Five units and above, it's multifamily. It's a business. A business is valued based on the profit it produces.” (01:54)
• Valuation Power:
  • In commercial multifamily, increasing income & decreasing expenses directly increases property value due to the income approach.
  • Rich: “No matter how much that single family Airbnb makes, it's still worth whatever that house sold for across the street.” (03:02)
• Why Multifamily is Evergreen:
  • As asset class, apartment buildings are “time-tested”—shelter is a basic, irreplaceable need.
  • Multifamily often receives the best lending terms—especially non-recourse loans.

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2. The BRRRR Method & “Infinite Returns” (04:23–09:50)

• Tony describes his first 7-unit deal:
  • Focused on great location, boosted rents from $700 to $1000/month through reinvesting cash flow into upgrades.
  • Increased NOI from $30k to $60k; property reappraised from ~$500k to $1M, enabling a tax-free cash-out refi of $250k.
  • Tony: “My wife and I got a $250,000 tax free check. I still own the asset today. ... What's your return on investment if you have $0 invested?”
    • Rich: “Infinite.” (06:06)
• Added benefit: cost segregation study for immediate tax deduction.
  • Tony: “Day one we did a cost segregation study, took a $200,000 tax write up. ... The cash flow will feed you, those cash out refis will free you.” (06:55)
• Why Cash Flow Isn’t the Whole Story:
  • Cash flow is necessary for holding, but true wealth is built through refinance and equity growth, thanks to tax advantages and leverage.
  • Tony: “Bro, the ice cream sundae of multifamily is the tax benefits.” (08:08)

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3. Imperfect Action, Midwest Markets, and Entry Points (13:14–18:14)

• Getting Started:
  • Both Tony and Rich highlight the power of “imperfect action” and learning-by-doing—mistakes are inevitable, but real estate rewards resilience and resourcefulness.
  • Rich’s early deals in Cincinnati and Indianapolis demonstrate this in practice; despite setbacks, deals still paid off.
• The Midwest “Sweet Spot”:
  • 8–30 unit deals, often with unsophisticated owners, are ripe for value-add plays (rent increases, RUBS, pet fees, etc.).
  • Tony: “When you lack resources, you gotta get resourceful.” (36:53)
  • Fewer institutional buyers, more “under-managed” assets.
• Location is King:
  • Never compromise on neighborhood—tenant quality can be changed, but location cannot.
  • Tony: “I bought a 100 unit apartment. We had to do 70 evictions ... But that's cool. You can change that; you can't change location.” (15:33)

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4. The 1031 Exchange & Refi-and-Roll Playbook (22:17–25:48)

• What is a 1031 Exchange?
  • Explained as the government’s incentive to keep investors’ money in real estate—profit from a sale is “rolled” into a bigger property, deferring capital gains tax.
  • Real wealth comes from servicing multiple cycles of “buy, add value, refinance or sell, 1031 into bigger asset, repeat.”
  • Rich: “If you're up, like is another value add kind of property. There's nothing that stops you from doing a cash out refi on that 18 months later.” (24:12)
• Current Financing Climate:
  • Even in a high-rate market, multifamily is still attractive due to leverage, favorable debt, and depreciation provisions.
  • Tony: “What’s the alternative? A 401k that makes Wall Street wealthy? No, I’m good, dude.” (24:53)

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5. Management: Self-Manage or Die (40:24–46:09)

• The Fatal Flaw of Third Party Management:
  • Both hosts adamantly agree: no one will care about your NOI but you.
  • Third-party property managers tend to make money on repairs/construction, not management fees—often leading to inflated bills and stagnant rents.
  • Self-management means more cash flow, superior tenant selection, and proactive renewals.
  • Tony: “Third party managers are not there to make you money. They're there to make themselves money.” (41:04)
• Scaling Up Management:
  • Tony’s wife built their in-house management company from 87 to 377 units, resulting in much higher operational efficiency.

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6. Creative NOI Boosters (32:15–39:51)

• RUBS (Ratio Utility Billing System):
  • Billing tenants for their share of utilities can significantly cut expenses—all legal-considerations permitting.
  • Gradually phase in utility charges for smooth tenant transition.
  • Tony: “Bro, I'm not taking the showers. I'm not flushing the toilet. Why do I have to pay that bill?” (33:08)
• Ancillary Income Streams:
  • Pet fees, storage rentals, late fees, laundry income, and creatively utilizing under-used spaces (barns, basements, parking).
  • Tony: “A dollar’s not a dollar, dude. A dollar on a 6% cap rate is like 15, $16.” (35:22)
• Laundry:
  • In-unit washer/dryer can command $250–$300 rent bumps and far greater applicant demand.
  • Tony: “If there's hookups, you're gonna save a lot of money. ... We're getting 250 to $300 rent premiums for those.” (37:11)
• Application in Different Markets:
  • Some strategies (particularly RUBS) are state-dependent (e.g., North Carolina requires sub-metering).

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7. Deal Sourcing, Underwriting, and Due Diligence (28:16–59:12)

• Deal Flow is About Relationships:
  • Respond to brokers, give feedback—“People don’t know you, they can’t flow you.” (28:16)
  • Being “easy to work with” is a competitive edge for more deal opportunities.
• Underwriting Simplified:
  • Focus on units × achieveable rent growth × 12 ÷ cap rate = value-add potential.
  • Tony: “So many new investors ... look for reasons not to do the deal. ... Look for reasons to do the deal.” (56:13)
• Due Diligence:
  • Retrading (renegotiating) is only valid for issues undisclosed up-front.
  • Gather story from broker/seller—why are they selling? Hidden capex, etc.
  • Rich: “You can rub these brokers the wrong way ... if you are retrading for the wrong reasons on stuff that's already been disclosed. So don't be that guy.” (57:12)

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8. Quick Tips on Leasing & Operations (46:09–52:43)

• Proactive Leasing:
  • Stack lease renewals into spring/summer; market units 60–90 days before move-out.
  • Use creative solutions (e.g., hire local real estate agents on commission for lease-ups).
  • Test unconventional marketing—Facebook Marketplace, Craigslist, TikTok for leasing walkthroughs.
  • Rich: “We fielded all the inquiries and ... once they're ready to set up the tour, we would just loop them in with this girl and she would show up doing a property tour ... and dude, this leased up all the units ...” (47:51)
• Renewal Focus:
  • More profit is found in renewals than in turnovers—minimize vacancy and note, “vacancy is an NOI killer.”
• Hybrid Approach:
  • If self-management isn’t realistic, blend creative outsourcing–but always stay hands-on and monitor KPIs.

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Notable Quotes & Memorable Moments

• Tony: “Imperfect action always beats standing still. Action cures anxiety.” (13:14)
• Rich: “Multifamily is evergreen. There's never going to be a replacement for two things: a place for people to sleep and a place for people to store their belongings.” (03:02)
• Tony: “Cash flow will feed you; cash out refinances will free you.” (06:55)
• Rich: “Just go do a deal—no one retires off of their first deal.” (09:50)
• Tony: “When you lack resources, you gotta get resourceful ... you have to look for things that the other owner wasn’t doing.” (36:53)
• Tony: “If people don’t know you, they can’t flow you, right? And brokers are the lifeblood of the business.” (28:16)
• Tony: “Third party managers are not there to make you money, they're there to make themselves money.” (41:04)
• Tony: “Look for reasons to do the deal, not for reasons not to do the deal.” (56:13)

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Timestamps for Key Segments

| Segment | Timestamp (MM:SS) | |------------------------------------------------------|-----------------------| | Residential vs. Multifamily Valuation | 01:00–04:23 | | BRRRR & Infinite Returns Example | 04:23–09:50 | | Midwest Market Opportunity & Imperfect Action | 13:14–18:14 | | 1031 Exchange & Refi-Roll Playbook | 22:17–25:48 | | Creative NOI Boosters: RUBS, Fees, Laundry, Storage | 32:15–39:51 | | Self-Managing vs. Third-Party Management | 40:24–46:09 | | Leasing Tips & Operations | 46:09–52:43 | | Simplified Underwriting & Due Diligence | 54:12–59:12 | | Focus on Action & Final Advice | 56:13–end |

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Final Takeaways

• Small-scale multifamily properties in heartland markets are ideal launching pads—even if you’re starting fresh.
• True wealth in multifamily isn’t just about cash flow; it’s about executing value-add, controlling management, maximizing tax advantages, and scaling through 1031 and refinance cycles.
• Creative, hands-on ownership and a willingness to “do what others won’t” is a recurring theme—find ways to increase income, lower expenses, and control the process.
• Don’t fear mistakes: resilience, relationship-building, and resourcefulness will get you further than waiting for the perfect scenario.

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Connect with Tony Stephan

• YouTube: Tony Stephan
• Website: tony7.com (Mention “Rich Somers” for 30% off coaching/mentorship)
• Instagram: @tonystephancoaching

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"One small multifamily apartment will change you and your family's life if you do this BRRRR method." – Tony Stephan (60:47)

Transcript

[A]

Hey, guys.

[B]

We are closing on our two most exciting boutique hotel opportunities yet. Catalina island and Bodega Bay, which will make a total of eight boutique hotels for summer's capital. For a last chance opportunity to participate with us before we close, go to summerscapital.com invest. Now let's jump into the show.

[A]

I think one of my biggest advice for your, your listeners, look for reasons to do the deal, not for reasons not to do the deal. So many new investors like, oh, do, dude, there's dirt on the floor. I'm not doing the deal. Yeah, dude, it's, it's tenants, right? They're, they're renting it. Yeah, all good. But look for reasons to do the deal and that's why keep it simple. As humans, we try to over complicate things to give us an easy way out.

[B]

All right, guys, today I got someone doing big things in the multifamily space and he's going to be dropping a lot of stuff, a lot of game on. 377 doors, no investors, just him and his wife. I got my man Tony Stefan in the building. What's up, Tony?

[A]

Rich, what's up, bro? Appreciate you having me here, man. Beautiful, beautiful spot, bro. I love the spot.

[B]

Thank you, bro. Thank you. Appreciate you coming down, man. Michigan, you're in Newport for the, the winter season with the lady, dude. So I got. I gotta say, man, I think the biggest misconception with multi family is a lot of people think that one through four units is multi family. I'm like, no, no. One through four units is residential. Why do you think people get that confused? And what's the biggest difference?

[A]

Dude, I get a lot of hate on the Internet with this. But one to four units, it is residential. It is a single family home, bro. You can call a duplex a residential multi family. A small multifamily, do whatever. I used to own duplexes. You saw in triplex, you saw on a fourplex. It is only valued based on comparable sales. So one to four units, single family home can only be valued based on comparable sales. You are hoping and praying your neighbor's property will support your value. Right? So it's not a business. Not treat like a business. There's no. No. I like when I see people like, look at my four unit. My noi, bro. There's no noi in a fourplex, right? Five units and above. It's multifamily. It's a business. A business is valued based on the profit it produces. In, in multifamily. We just call it noi income less expenses equals your noi. Noi divided by cap rate equals how much that building is worth. So if you can control the noi, if you can boost the income and lower the expenses, you make that building more valuable. You do that on a duplex, bro. I, I've had four unit little fourplexes where we took the rents from 500 bucks to 950. We barely broke even on the sale because there were no comparable sales. I've done it on a seven unit. I made $250,000 tax free.

[B]

Yeah. And you know, it's important because the example you just said, it's like, hey, like you can buy a duplex or a triplex. No matter how much you increase the income of that building, it's still worth whatever the comps are, are selling for across the street on a, on a price per door basis, price per square foot basis, generally speaking. But you get into a little bit larger multi family and now they're valued based on the income approach. NOI net operating income divided by the cap rate equals value. So the more we can increase the income, the more we can decrease the expenses, the more we can quote, unquote, force our appreciation, giving us more control over the asset, more control over our investment, more control over our financial future, which is very nice. Now I say the same thing with hotels because a lot of people invest in single family Airbnbs and no matter how much that single family Airbnb makes, it's still worth whatever that house sold for across the street. And that's why the boutique hotel game, I'm like, guys, this is the magic formula. And it's the same thing in the multifamily game. I'm a big fan of multifamily. Now one of the things I like most about multifamily, a lot of people don't know this about me, is I actually own more in multifamily than I own in hotels. And I'm a big believer in it. I'm a big fan. And the reason is, is because it's time tested, right? There's never going to be a place, a replacement for two things. A place for people to sleep and a place for people to store their belongings. Multifamily is evergreen. Because of that, no technology is never going to, is ever going to supersede the basic need of shelter. So multifamily apartment buildings, it can't be Kodak, it can't be BlackBerry, there's never going to be a replacement for the basic need of shelter, which Is why that asset class is evergreen. It's also why you can get the best debt. You can often get non recourse lending on multifamily Where a lot of other asset classes. In commercial real estate, it's very hard to get non recourse debt.

[A]

Yeah, 100%. Yeah. Our biggest deal is 120 units. We did Fannie Mae non recourse debt on that. All of our other stuff, we did recourse just because we do the bur strategy. I want to buy, right? I want to, I want, I want $500 rent. That should be $1,000. Because I want to be able to improve it, right? Raise that noi up. Like my first deal is the perfect deal. This is like every single family in America should do one apartment deal just like this. We found a seven unit apartment, dude. It was in an A plus area. Never compromised on location. That's why you're in beautiful San Diego, right? Never compromised on location, but it was renting for about 700 bucks. Okay. Seven unit apartment. The NOI was $30,000 for the year. As the tenants moved out, we pumped the cash flow back in the deal. So we were big proponents. Don't strip your cash from your assets, Reinvest your cash flow. To boost the noi, tenants moved out. We did light upgrades, took the rent from $700 to $100 one year. The NOI goes from 30,000 to. To 60,000. 60,000 divided by 6% cap rate, which is what that building appraised for. It's a million bucks. I go back to the bank, I'm like, hey, look, we took this business because like I said, single family rentals are not businesses. Multifamily are businesses. My business when I bought it was producing 30,000 a year in profit. Now she's producing $60,000 a year in profit. I've got an appraisal here for a million bucks. Will you do a new loan on this? They said we sure will. They do a cash out refinance. I owed about 500,000 on, on the loan at that time. So a million bucks. 75% loan to value. $750,000. Paid off that old loan. My wife and I got a $250,000 tax free check. I still own the asset today. It's still cash flows. I mean, dude, what's your return on investment if you have $0 invested?

[B]

Infinite.

[A]

Infinite.

[B]

And how much did you guys put in initially?

[A]

$132,000 down.

[B]

Page 664, down payment. And then, and then you reinvest the cash flow into the just re reinvesting the cash flow is what most people don't understand that are investing in a stock market, investing in a crypto to say, oh well, you know, real estate versus stock market stocks traditionally, you know, go up more. I'm like, no, no, no. When you do the bur method, you pull 100% of your initial proceeds out, you still own the asset. Your return on investment moving forward is now infinite. Not to include all the additional cash flow, the equity growth and the depreciation, all the tax benefits that come with it. And so you have an infinite return on investment. You can't do that with stocks, you can't do that with crypto. And so that's why I say real estate. And you throw in the leverage, the best debt, it is superior to all other investments. Because of what you just said, 100%.

[A]

And I forgot to even mention, on day one we did a cost segregation study, took a $200,000 tax write up. So I put $132,000 down to buy that deal. Day one, $200,000 cost segregation study. So that saves me $200,000 off my earned income, right? Then year one later, $250,000 tax free wire, dude, like you said, I'm making money so different, so many different ways. And this is why we really push people. Like don't just myopically focus on the cash flow. The cash flow will feed you those cash out refis, those will free you, bro. $250,000 one day tax free. Like I know you used to work as an air traffic controller. I was a registered dietitian, bro. How many years would that take us to make? 250,000? Then it's taxed, bro.

[B]

I would work six days a week, 56 hours a week, nights, weekends, holidays, all, all year long. And the best year I ever had was 207. And after taxes, Social Security, all that sort of stuff, fed and state tax, I would probably take home about 120, 10k a month, man. And that was me grinding, grinding. So that's huge, man. Okay, so you said something very interesting here. You said cash flow will feed you cash out, refinances will free you. What? What do you mean by that?

[A]

Every, like when you go on social media, right, and you see all these like influencers out there, they're talking about cash flow. Like, hey, I bought a couple of deals and I quit my job and I live off the cash flow. Or you hear these like other like big podcasts, right? Dude, cash flow is Borrowed, right? Let's be honest. Unless you're buying in 100% cash, which why would you not use debt as leverage, right? Cash flow is borrowed. That property is going to ask for that cash flow back by way of a new roof, by way of tenants moving out, by way of evictions, right? By way of upgrades, parking lots, whatever, right? So the cash flow, it will feed you, it's like a little drip to keep you going. It's like the cherry on top. But bro, the ice cream sundae of multifamily is the tax benefits. Like I said, you buy an asset, you do a cost segregation study right now with 100% bonus depreciation, like dollar for dollar, a dollar of equity, dude, you're getting a dollar in tax savings like you said. What other asset can you do that? If I buy a million dollars, or even use the same example, $132,000 of Meta stock today, the only tax benefit I get is if I lose money on it. What's Warren Buffett's number one rule? Don't lose money. What's the second rule? Don't forget rule number one, right? So I get the tax benefits and then I can control the asset. I can raise the NOI again. In that first apartment building, that seven unit apartment, we didn't do anything crazy. We didn't quit our, our, our full time businesses. Tenant moved out, did little light upgrades, right? Got the NOI from 30,000 to 60,000. The bank reappraises it, you pull out all that equity gain tax free. That is life changing money. Like what do you want? Do you want $8,000 a month in cash flow maybe? Or do you want 100 grand today?

[B]

Yeah. And this model works because two of my early deals I did this on. So 11 unit building in Cincinnati is my first ever deal I ever did. A cash on my 401k to do this one and another one 350k, about 31k a door if my math is correct, and bought this deal. And about 18 months later I refinanced it, it appraised at the 600k mark, got a new loan, pulled that money out and it covered my down payment. And I got all my renovation costs back through that. Still own the asset and all that later I sold it and actually sold it last year for about 720. But I pulled all my money out and then I still cash flow the asset moving forward. Another one I bought early on in that same market. And shout out to the, the broker who, who, who sold me both of These deals. His name is JD Schmy. Works for Eminem. Actually worked for Eminem back then. Now he works for different brokerage, but JD and his wife invest in me now. So big shout out to J.D. but anyways, that first 11 units, you guys can look it up. If you're listening, 5146 Carthage Avenue, Cincinnati, Ohio, 545212. It's crazy how we memorize these addresses after a while. But anyways, that was my first ever deal and I made all the mistakes, but it gets you in the game. And so I always tell people now I'm like, hey, just go do a deal. Like, it doesn't need to be this like home run deal. No one retires off of their first deal. Just go do a deal. If it's commercial, even better, right? But just go do a deal because you don't know what you don't know. I made all the mistakes. I hired the wrong property manager. I had tenants move out right after we closed. Like, I made all the mistakes. And guess what? It still worked out. Because we figure it out, right? That's what we do as entrepreneurs. And if you're savvy, you're going to figure it out anyways, JD Hits me up like a year and a half later. And this is why you build relationships with people that have deals. And he brought me this other deal. It was basically an eight unit apartment building on the south side of Cincinnati, on the, on the south side of the Ohio river in an area called Covington, Kentucky. And he brought me his deal. He goes, hey, I got an eight unit building that you can buy for $207,000. And he goes, this, this guy's uncle gifted it to him after 30 years. The nephew doesn't want anything to do with that. He just wants to basically get rid of it. And the guy gifted it to his nephew for like 130 grand. And so he just want to take a profit. So I'm like, all right. So anyways, I ended up buying this thing 207. I did the same thing a year later. I did a cash out refi and, and I owned it for a little bit and then I later sold it. But what I'm trying to say is this, this birth strategy works with multifamily and especially with these smaller multifamily deals that you can pick up in the Midwest between, you know, eight and 30 doors, you know, right time, right place, you can pick up some pretty steep discounts because not a lot of sophisticated buyers are going after These type of deals. And so if you're listening this right now you're looking to do your first multifamily deal, your second multifamily deal, you're newer in the game. I think this is a great place to start. You know, you go into these Midwest markets, it's, it's hard to lose money, it's hard to make mistakes. You're going to make mistakes, but it's hard to lose money with those mistakes because there's not a lot of risk getting into those types of deals. And again, guys, remember, multifamily is evergreen. There's never going to be a replacement for two things. A place for people to sleep and a place for people to store their belongings. Elon Musk might think of something down the road, but for now there's not going to be a technology that supersedes it. And so I think it's a great place to start. If you're out there wondering, hey, like, there's 100 ways to get started in real estate investing, which way should I go? I think this is one of the best ways to get started. That's how I got started on same thing, man.

[A]

I mean, imperfect action always beat standing still and action cures anxiety. And that's why we come spend time out in California. I will always invest in the Midwest. We don't have over saturation and new supply. Right. You can buy undervalued properties. Like you said that, that five to 30 units, such a sweet spot because you're typically dealing with unsophisticated owners. They're not doing all the ancillary income things that we do to boost noi like rubs pet fee. Dude, we buy buildings where there's 30 pets in there. No one's paying a pet fee like hello Noi booster. Right. They're not doing the sophisticated things. Like you said, it's either owned by a husband and wife, a couple brothers, siblings, or someone passed away. So you can come in and buy these opportunities. You don't have to go to a massive 100 unit deal that you have to go syndicate or why not get your feet wet and learn how to buy deals, improve them, you know, control the operations, make a ton of money. And you and I both know when you have a track record, so much easier to get money to get people to want to invest with you down the line when you've proven it with your own money.

[B]

Yep.

[A]

Right.

[B]

For someone listening to this that wants to go buy their first multifamily deal. What, what are some, some markets that you really like today and why?

[A]

Yeah, the Midwest 100%. So we invest exclusively in metro Detroit for now. Then as we expand out, I'll look at Indiana or Ohio. We're very big on. We want to go deep, not wide, since we manage all of our own properties with our own team. But I love the Midwest for all those reasons, man. No oversupply. Like in the, in the areas I buy in metro Detroit, there's zero new construction coming this year. Zero. So I'm not worried about like, hey, someone building something down the road, I have to compete with it. Right? We don't get this rank concessions like other areas in the market. Dude, my rents are growing. I'm not giving concessions. I've got wait lists on my properties versus these other properties in some of like the sun belt states or whatever. Dude, they're giving away six months for someone to come live there.

[B]

Yeah, right.

[A]

Or some of these class A's are like, hey, I got Phoenix.

[B]

Phoenix led the the nation for like 10 years in, in annualized rent growth. 9, 10%, 11% a year. Everyone was just overpaying out there. And dude, I mean if you go to Scottsdale, Phoenix right now, there's a lot of, there's a lot of competition, a lot of high rises popping up and they can't lease these buildings up and they got negative rent growth now 100%.

[A]

So all that matters, man, I just want steady Ed. I do like the Midwest like vanilla ice cream. It's not going to knock you off your feet, but it's just going to steadily go up over time. That's why we stick with.

[B]

Yeah, I like that.

[A]

Yeah.

[B]

What are some other areas outside of Detroit that you like?

[A]

I would look at? Like I said, I like Indiana, I like Ohio. Right. A little bit more landlord friendly states. I love that Midwest, man. I want a building where the bones are good, foundation is good. It's a good area. I'll never compromise on location because you can't change location. You can change countertops, you can change paint, you can change tenant basis. Dude, I bought 100 unit apartment. We had to do 70 evictions there in year one. Like we had to reposition not the building, but the tenants. But that's cool. You can change that, you can't change location. Right. So I'm always going to double down on a good location. But I want a building where it's renting for 700 and should be 1100. It's just artificially low. Why is it artificially low? Longtime owner out of State owner, third party property manager. That's where I want. Yeah, that's my focal point.

[B]

Yeah. So essentially you want to see the loss, the lease be in that 30% range.

[A]

100% do. Well, I mean, if you think about it, that's where a number of units is really important. But if I can buy 10 units with $400 rent growth, bro, that's 4,000 bucks in new NOI. Right. A month multiplied by 12 months divided by the cap rate, you're making tons of money on that deal. Like you said, maybe you only bought that 10 unit for 800 grand. Like, where else can you do that?

[B]

Yeah, right. So one of the things I'll say is this kind of a pro tip. The, the reason I like Cincinnati is because a couple things. Employment growth is good, population growth is good, and in Cincinnati there's a ton of small multifamily deals between eight and like 20 doors. It just, it's just that's how the city was built. There's, you're just going to see a ton of small multifamily buildings that are eight to 20 doors. When you drive around Cincinnati here in San Diego, you might have some of it, but, but you know, it's, it's not like, like certain markets just don't have a lot of that smaller multifamily stuff.

[A]

Sure.

[B]

For whatever reason, Cincinnati has a ton of it. And so I like that market because of it. And so I would say put Cincinnati on the list.

[A]

Love that. No, I love that. And like you said, man, there, bro, there's no difference because we own 8 units, 12 units, 16 units. We own 100 and 120. There's no difference managing 100 units than an 8 unit. Just that many more people. And now it's almost, I would say it's almost easier because you get an on site manager and you get a full time maintenance person with 100 units. But if you learn how to do it on eight units, it's not going to overwhelm you. Like, dude, when, when I first bought that 100 unit, it was a bit like, whoa, you know what I mean? It was a big step up because our biggest deal before that was 56 units. Right. But buying an eight unit, you're not going to feel overwhelmed. Like, bro, my 100 unit, man, it's got its own like zip code pretty much. It's a big, it's a big beast. Right. You pull up to that eight unit, you're not going to feel overwhelmed. If one person moves out, you're good you can handle it, you can lease it up. Right. And changes move the NOI faster. 100 units, right? It takes longer to move that noi.

[B]

Right.

[A]

There's more, there's more at play there. Eight units though. You can, you can flip that in freaking three months.

[B]

Yeah, 100%.

[A]

Yeah.

[B]

So I was telling you a little bit about this deal before we started recording. I'm going to share this. This was so in 2019 when I was working full time as an air traffic controller, I cashed out my 401k and I took some of it to buy that 11 unit for 350, but 25% down and I took the rest of it and I partnered with two guys, Mike and Sean, and we ended up buying this 32 unit building in Indianapolis. We bought it for 1.2, got a little seller credit and 32 unit building south of Indianapolis in Green Greenwood, Indiana. The address, you guys can look it up. 622 Woodale Terrace in Greenwood, Indiana. And it was called Breeza 32. And anyways, bought this thing, mom and pop ownership had all the problems. 1960s construction, ugliest building that you'll ever see. And it was funny because like we would go out there and like we would joke like man, we're just buying a bag of bricks. It was just brick construction. It was a, it was a dump. But it was relatively good neighborhood. The schools were like sevens eights and you know, good like middle class. Median home, median income was like household income was like around 60k for back then was pretty good. And anyways we bought this thing. I remember during the due diligence day, we're out there, cops showed up, there was a couple prostitutes that live there at the property. A couple of tenants were drug dealers and we had the wrong property managers. Initially we made all the mistakes. But we renovated 50% of the units and the market just started going nuts. This is like a year and a half later, early 2021 and the market was just nuts. I mean if you remember like everyone just started getting. I mean the government basically printed a bunch of money and everyone started getting these, these Covid checks and the interest rates were like at zero and the market was nuts. Everyone was just chasing multifamily. And so this asset next door got under contract and I knew the broker and it was a larger asset is a couple hundred unit deal next door, but also 1960s product. And I asked him, I said what, what, what number is under contract for? It is about 100 a door. And we had just paid like 30 something a door for this one. And he goes, I can get you the same number right now. And I said, really? And we had no, no, no intention to sell. We're going to renovate all the units. And we were halfway through. He goes, yeah. He goes, stop renovating the units though. He goes, people will pay more for unrenovated units than they will renovated units in today's climate. And so we're like, all right, dude. So we put together like a listing agreement. He listed this thing and sure enough, he got us very Damn close to 100 a door. I think we ended up selling for like 96.97 a door. And there was multiple offers and the, the group that bought it, syndicated it, they paid a 3.7 cap rate for it. I gotta look it up and see how they're doing. I don't even know if they still own the asset. But I say all this in that like these were my first couple multifamily deals and we, I made all the mistakes and it got me in the game and they still made me a good amount of money. So we sold that thing, we bought it for 1.2, 1.1 and some change after the seller credit. Less than two years later, we sold it for 3.1. And I did a 1031. We did a tenants in comment and I 1031 on my own into a luxury Airbnb out in Scottsdale. And that was my first big win in the real estate game. But it came from the multifamily just buying C class in these like Midwest markets. And so I say all this and

[A]

that, it works 100% man. And then that's, that's the wealth building formula of multifamily, right? You buy it, right? You fix it up, you improve it, you take out money tax free. Because that cash out refinance is your only time in your life you can make tax free money, right, bro, if you and I inherit money today, it's taxed, right? You win the lottery, it's tax in your businesses, it's all tax. So that cash out refi is your ability to pull tax free money off the table. The only time in your life you're able to do that, right? You hold it for a couple years, sell it. 1031 exchange into a bigger asset. That's what we've done with a lot of our smaller deals. Like we start with houses. Cause I didn't know any better either. I bought houses, duplexes, fourplexes, some smaller apartments. That 1031 exchange, that's how like the legacy wealth, the family, the generational wealth is built through the cash out refinance and the 1031 exchange.

[B]

Yeah, that's really good. So, so break down the 10:31 exchange. What is that?

[A]

Yeah, so all it is is like it's the government's way of incentivizing you to stay into real estate, right? The government needs clean, safe, affordable housing, right? So they want us as investors to keep our money in real estate. So if we buy a property, we make money on it, right? We can sell it. Like I bought a, I bought a rental property in Las Vegas actually, not too far from here. We paid 600 grand for it. Within a year, someone offered us 700 grand for it. Someone from California, actually. So I sold that. I sold that. Now I didn't want to pay capital gains on that, right? So I put it in a 1031 tax deferred exchange, right. So I took that profit we made and I bought a 16 unit multifamily apartment back in metro Detroit. It's just, it's your way to keep your money moving into real estate, but all the while you're building a bigger and bigger portfolio, right? You're working that number up. I went from a 700k house to a $1.4 million 16 unit apartment that I took the NOI and I cranked it on. Year later, that building appraised for 2.1 million. I only put 280k down to buy it for at one point for it appraises for 2.1 million. I pull my 300g's out tax free, rinse and repeat, right? I could sell that 16 unit, go buy a 32 unit. If you just rinse and repeat this form, it's not a get rich quick get rich overnight game, but it's a get rich for for sure game.

[B]

Yeah.

[A]

You know what I mean?

[B]

For sure.

[A]

Yeah.

[B]

And let me, let me put a little tip on here. So you know, when you do a 1031 exchange, people think, oh, I can't take any of these proceeds, I got to roll in the next, the up leg. But it's like, well, if you're up, like is another value add kind of prop property. There's nothing that stops you from doing a cash out refi on that 18 months later and then taking that money and then doing whatever you want with those proceeds. And so it's a way to sell 1031 and get another asset, but then still take those chips off the table on the back end.

[A]

You, you, then you Repeat the process with a bigger deal. So I started with a house in Las Vegas, went up 100k, cool. Rolled that money. But then I bought a 16 unit, put, put $280,000 down to buy it, did a cash out refi. 12 months later, pulled my 300,000 out. But I still have that deal. So that, that's why I say you got to do the cash out refi because that's your way to get the money in your pocket that you can do whatever you want with.

[B]

We call it, we call this the, the refi and roll strategy. And you know, the truth is we've been in a high rate environment for about 48 months now. The Fed just came out, did three consecutive rate cuts to end 2025. We got a new Fed chair coming in May of this year. What are your thoughts on the interest rate market today?

[A]

I mean, dude, I've done majority of my cash out refi's at 7% rates, like 6, 6.75% rates. We on our last asset, at last asset it was 120 units. We did a Fannie loan, 5.4%. So that was really good. But look, man, here's the way I look at it again, what's my options? A 401k that makes Wall street wealthy? No, I'm good, dude. Right. The stock market, which if you really understand the stock market majority of those stocks are so freaking overvalued, bro. They're trading on profits they're going to earn 10 years from now, right? What's the alternative? You know what I mean? So multif family again, that's why we say it's about the cash out refis, it's about the depreciation. I mean depreciation's never been better. A hundred percent bonus, depreciation is in play for the next five years, right? So if you focus on those things and you keep earning income, you keep building your freaking earned income. Multifamily is a way to protect your income and multiply your income. Yeah, you can't beat it.

[B]

No, it's huge. And then as far as financing, like multifamily is the easiest asset class out there to get financing on. And you know, although we're in a high rate environment right now, like dude, these multifamily deals, I'm sure a lot of the financing that you're getting outside of the agency and even agency is relatively easy to get as long as you got the net worth requirement. And even if you don't, it's like, dude, you can always Bring in a loan guarantor. I did that with, with that, that 32 unit building in Indy before we sold it. We did, we did a cash out refi on that and it was an agency loan. And I didn't have the net worth requirement because you typically need a net worth equal to or greater than a loan amount. And we brought someone in and gave them 10% of the deal they signed. We get the cash out refi and then today I got the net worth and liquidity to, you know, the net worth to sign and guarantee my own notes, which is nice. But when you're, when you're early on, you don't have it, you get creative. That's what we do. But what I want to say is this, this is very important with the financing right now in today's environment, like out of all these different asset classes out there, office, hotels, industrial, self storage, and then you got multifamily. Multifamily is the easiest asset class to get financing on today. And you know, when the rates come down and things heat up again, and they will heat up again. I'll tell you what, it's, it's going to make multifamily even more aggressive with the, with the rates and the terms.

[A]

100% and like, dude, I bought a 56 unit. So this was like one of the biggest deals my wife and I ever did. 56 units back in 2023.

[B]

Okay.

[A]

I got a 7.5% rate. Rich. That sucked. That was not fun. That was not fun.

[B]

And what kind of loan, like was that through a bank or.

[A]

That was through a local credit union. So it was an 80% loan to value.

[B]

Now that's like, that's good.

[A]

Yeah, yeah, yeah, it was, the noise was 280,000, right? It was owned due to last sold in 1993. I was three years old when the deal last sold. So we bought it 30 years later, artificially low NOI. Two brothers owned it, they owned it in cash. They weren't pushing rents, any of that. We were able to take that NOI from 280,000 last year is 475,000. So now I'm getting that quoted out to do a cash out refi. I'm looking at like a 6.2% rate. So also to understand if it works today at a seven, a seven and a half percent. You look like a genius when it goes down to 6 or 6.2.

[B]

Yeah, yeah.

[A]

So we're, we're getting that when we were refi or buying deals at seven, seven and a half rates are, dude, six, 6.2%. That's not bad.

[B]

So break down this, this 56 unit property. I want to do kind of a deep dive into it. So break this down. What market is it in and how do you guys find this deal?

[A]

Yeah, so, man, if people don't know you, they can't flow you, right? And brokers are the lifeblood of the business. Bro, I'm busy. I don't have time to go drive around, look for, drive for dollars, do all those things. So we've always used brokers, right? I've always put it out there like, hey, if you send us a deal, we're gonna buy a deal. So it's very important for people listening to this if you want deal flow. If a broker sends you deals, two things. Number one, reply. You know how many people are on brokers list and they never actually reply.

[B]

That puts you like, I'm friends with some brokers and they're like, dude, if you just respond with some feedback of like, if a deal works or doesn't work for you, it puts you in like the top 10%, 100% of all investors.

[A]

And if you say, if you don't be the person who's like, doesn't work, tell them why so they can dial in the criteria. So we would do that a lot. My biggest deal before this was like 16 units. So then a broker finally called me in metro Detroit. He's like, hey, I've got a 56 unit. I've been chasing this deal for 10 years. These two brothers have owned it for 30 years. It was like a family asset. If I put it in front of you, you better close it. I said, okay, copy that. Very low noi. So I really had to sell the bank. That's why we say you're, you're always selling. The story is more important than the deal sometimes, right? You have to be able to sell your story, the deal story. So I sold it to a bank. They took a risk on us back in 2023. Rates were 7.5%. A lot of people weren't lending in 2023 because that's when the Fed was just raising everything up, right? So we, we were hands on with it. My wife was there every day. She had a manager with her, right? But going through the rent roll, increasing the rents, doing light unit turns, right, Taking care of the tenants. Just do take care of your tenants and take care of that asset. It takes care of you. So within two years, the NOI was about 280,000. And again no, ancillary income. That's one thing that we're really big on with our management company is other forms of income ratio. Utility build back system. Right. Building back. Utilities, rubs. Yep. Late fees, pet fees. Right. Community area fees. There's a ton of community areas in there. We take care of all that. That's something you can build back right to the tenants and really boost that noi. Even just like things like late fees. So many mom and pop landlords, bro, they don't charge late fees. Like, dude, if I pay my mortgage late, I, I get a fee. I pay my Visa late. That's a fee. I pay my Mercedes late, they come, take it back. Why are you not letting your, why, why are you conditioning your tenants that it's okay to pay late?

[B]

Yeah.

[A]

How you do anything is how you do everything. What you resist will persist. So if you resist charging them a late fee, bro, they're gonna keep paying late.

[B]

Yeah, that's good.

[A]

We did all these management and operational things. The NOI now is at 470k and I've got four lenders fighting to refi this deal.

[B]

That's really good. And so with the NOI growth, you mentioned some of the things that you did, those levers, did you also put in some capex?

[A]

Yeah, so we, we had to do roofs. So we had to do brand new roofs there. And that's why we always say multifamily is not a no money game, bro. Like we're not charging up business credit cards and going buying a 56 unit, $5 million asset. We kept earning money, we saved money. Right. We knew we had to buy this deal, we knew we had to do the roofs. So we pumped money into this. My wife and I try not to take cash flow out of our deals. We're always looking, can we reinvest this money into this business to go get this massive payday to where we can

[B]

reimburse ourselves and the cash out refi is your cash flow essentially, is what you're saying.

[A]

Bro, I don't bread. I don't want $83,000 a month. I want $1 million in one day so I can take that million dollars and go redeploy it. Right. And compound and turn a million into 2 million. So that's the biggest thing. And that's where we see so many newer investors struggling. They're trying to strip every dollar of cash flow out of this business. Right. They don't.

[B]

That's what the mom and pops do.

[A]

That's what the mom and pops do. And then that's why they can't cash out, refi them or they go to sell them and they're so distressed and they think it's worth a million bucks. But you're getting offers at 500k because you were never reinvesting the money to improve the property. That's why we say cash flows, borrowed, broken, that deal is going to ask for that cash flow back by way of roofs, parking lots things. So why not pump the cash flow back into it? Take, like I said, give it the cherry back. Take the Sunday, take the tax benefits,

[B]

take the cash out, refi, break down the rubs. Because this is an important one I think is a big lever that you could pull. And then depending on state, you might have to do like Submariner. Because some states allow or don't allow the rubs. But what is rubs for the people that, that are listening.

[A]

Yeah. So look at it as if your utility bills, one of the biggest expenses on a multif family deal, multifamily, small multifamily, runs 30 to 40% expense ratio. When you get 100 units above, it's, it's like usually, rule of thumb, 50% expense ratio. Right. There's only so much income growth you can push. Right. Rents are rents. Right. So if you get artificially low rent, great, that's a great way to boost noi. When people think of like forcing value in apartments, they just think like rent growth, rent growth. We make a ton of money on the operational side and cutting expenses. Right. So if I have a $10,000 utility bill, say on my 20 unit apartment, I can bill that back to the tenants. Bro, I'm not taking the showers.

[B]

Yeah.

[A]

I'm not flushing the toilet. Why do I have to pay that bill? Right. So you can build that back to the tenants slowly over time. So we might start with only 20% of it in year one, 50% in year two, 100% by year three. So it's not overwhelming. But I'm always looking at ways to put expenses back right to tenants again within the market, rent and all that slowly over time because that's what boosts your noi. And two, I'll be honest with you, it makes tenants be more responsible when they're paying for it. They take more responsibility in that. And that's why we say you got to run it like a business.

[B]

And so there's third parties out there that will do the rubs for you if you go that route. Do you guys use third party or you guys just direct bill yourself?

[A]

No, we just direct bill it all ourselves. And like these CRMs and these management softwares are getting so sophisticated. Dud. They'll, they'll do it for you.

[B]

They'll do it. It's all included now. That's really good. Yeah. So we have some multif family out in North Carolina. In North Carolina you can't do this Rubs. Legally you have to sub meter. And so it is a little cost to do the sub meter, but it still kind of makes sense in the long run because you're, you're forcing appreciation, you're increasing the noi and adding a little cash flow there. And then what are some of these other fees that, that you guys are wrapping in? You mentioned a few of them. What, what are those?

[A]

I do the biggest thing when I'm looking at buying a small multifamily apartment, I look at the PNL statement or the T12 for those that don't know. T12 is just a trailing twelve month profit and loss statement of the business. You can learn anything you need to know about a property by looking at the T12. Right. I get super stoked and excited when all I see on the income side is rent because they're leaving so much money on the table. Rich. I walked properties. 24 unit building. And every single tenant there has at least one or two pets. Dude, that's all income, right? Pet. I, I love, I love dogs. I've got two dogs, but dude, they got to pay, they got to pay fees. Yeah, right.

[B]

What's a typical pet ramp for you guys?

[A]

150 bucks per month. Yeah.

[B]

Okay.

[A]

Yeah.

[B]

So we charge pet fees at the hotels. Yeah, 75 bucks.

[A]

You have to.

[B]

And dude, it adds up. Like our hotel in Bodega, Hotel Dega. On average that thing brings in 6 to 7,000amonth just in pet fees.

[A]

100%.

[B]

That's a lot of money over the course of a year that they drops to the bottom line.

[A]

D the magic formula in multifamily is $1 divided by the cap rate equals your valuation increase. A dollar's not a dollar, dude. A dollar on a 6% cap rate is like 15, $16. So if I can get even a hundred dollars in fee from pets that's substantial. That's, that's what most people don't understand. It's a multiple effect. With multifamily, one of our deals, that first seven unit deal I was telling you about, it had an empty barn on there. The old owner would put like random weird crap in there like dishwashers and fricking washer and Dryers. We took it out, we rented it for 500 bucks a month. 500 bucks a month multiplied by 12 months, that's 6,000. 6,000 on a 6% cap rate. So that's, I'm. That's what I'm saying. You have to be creative with small multifamily. You have to look for things that the other owner wasn't doing that you can create new noi with. Right. There's so many different things. We had one building that had storage units in the basement. They were dirty. They were filled with the owner's crap. We cleaned them out. We allowed the tenants to rent them for a fee. They thanked us because they're like, I'm overflowing with stuff. The owner would just put their crap in there. That's no I boosters you got. When, when you lack resources rich, you got to be willing to get resourceful and you have to be willing to look at different ways to make money on this building that the former owner wasn't doing. So when you guys are listening to this and you go look at PNL statements, if you just see the only income line there line item is rent, that's when you get excited because I know there's going to be so many creative ways I can create income sources on this property.

[B]

Yeah. What do you, what do you do with. I see some people like do some stuff with trash and laundry. How do you approach trash and laundry?

[A]

So number one thing, with laundry, if we have hookups, I always want to install in unit washer and dryer.

[B]

Yeah. On average, how much of a rent increase can you get for installing that? Because you're going to pay for the washer dryers. Right.

[A]

You're going pay for the washer and dryers. If there's hookups, you're going to save a lot of money. Our 100 unit, there's not a hookup. So we're doing it. It's about 5 to 6,000 per unit. But dude, we're getting 250 to $300 rent premiums for those. Plus we're just getting way more volume of applicants because everyone wants an in unit washer.

[B]

Yeah, yeah. No one wants to walk downstairs. No.

[A]

And the weird creepy basement. Leave the freaking underwear in there and other people in there.

[B]

Yeah, yeah, yeah. But if you do so you, you'll install the, the hookups. Yeah. If they don't have them, it's not, it's not preferred.

[A]

But dude, you got to do what

[B]

you 5 to 6k per unit and, and you can do it.

[A]

Yeah.

[B]

Interesting. Okay. Okay.

[A]

Ye it. I wonder.

[B]

I wonder what those bumps are in. In a place like San Diego, dude, probably way more. You think like 400 bucks maybe?

[A]

Substantial. Everyone wants it. But like, on my 56 unit, we saw they had washer and dryers in the basement. On his income statement, it had $0 for washer and dryer income. Right. So again, we know, okay, he's just pocketing the money. That building makes $11,000 a year in washer and dryer income. So that's the number one thing. Don't. Don't steal it because you're. You're not stealing $11,000 from your property. You're stealing $11,000 divided by the cap rate. You're stealing hundreds of thousands of dollars from your property. So look for that. Look for. Is the owner just pocketing the cash because they don't want to claim it on their taxes? That's tons of. No, I look at is the area. What's the area demand? Can I. Do I have hookups and no washer and dryers? That's money. Because then all you have to do is literally install the washer and dryers. Or can I install the hookups and include the washer and dryers in there?

[B]

If there's hookups, it's typically. What kind of construction? 1980s and newer.

[A]

Yeah, it depends. Yeah. Yeah.

[B]

Okay. Okay. I haven't heard of people doing the. The hookups themselves, so that's pretty unique. It still makes sense, though.

[A]

It was a play because we. The. So the asset, that 100 unit asset was completely remodeled. It was just operationally a disaster. They were fixing flippers right on apartments, though, at scale, the noi was tanked, so we had to say, okay, we have to reposition, like, the tenant base here. I told you we had to do 70 evictions. 70 evictions on 100 units in one year, bro. Like, you want to test your marriage, do that, you know, I mean, with your partner, that was stressful, but we definitely got through it. But we had to look at again back to when you lack resources, get resourceful. So we had to say, okay, this is a brand new asset. They've already done all the upgrades. They did the roofs, they did the parking lots. They painted the building. They don't have in you a washer and dryers. Let's test. Let's start with five. This is something we've always done.

[B]

See what kind of lift you get?

[A]

100%, dude, you don't go. Don't go do them. All go do five, right? Go do five. We tested them. Huge rent bumps, huge demand for those units. Everyone's coming in. I want the washer and dryer units. Those start going on wait list. Go do the next five. So always remember, you can approach anything in business very systematically. Right.

[B]

Where do you put the washer dryers for these like one bedroom units where they don't have a lot of space to begin with?

[A]

Like the cloth, like little hallway closets.

[B]

Okay.

[A]

Yeah. So you just carve it out, place them in there and then you buy them at scale and you do them at scale.

[B]

Yeah, yeah, yeah, yeah. That's pretty good. So you said 5 to 6k and that typically includes all the hookups, everything, the new plumbing and the washer dryer.

[A]

Oh, and then we're using our in house team to do it though, right?

[B]

Yeah.

[A]

Right. We're outside contracting if we need to, but we're always trying to. This is the power of when you control the management of the operations, that's where all the money's made. When you're start when you're using third party contractors for everything, dude, they kill you.

[B]

Yeah.

[A]

You know what I mean?

[B]

So you say don't ever use third party property management. Why do you say that?

[A]

Bro, we had 87 units.

[B]

Okay?

[A]

Right. And we had third party managers because, you know, passive income. And we wanted to buy real estate to have passive income. My wife comes to me one day and she's like, dude, we are paying for these properties. Like there's some cash flow some months, but then a unit turn happens. They're charging us on a duplex one time. Do you charge me 20 grand for a unit turn? Because third party management companies are not there to make you money. They're there to make themselves money. Right. And when a lot of these third party management companies, they don't make their, they don't make their money on the management fee.

[B]

Right?

[A]

Bro, if you're, if you've got an apartment that makes 100 grand a year and they're charging 5%, that's nothing. They make their money on the repairs and maintenance or the construction that they're charging their in house team plus an upcharge. So the third party management company we had, they're charged like 100 bucks an hour plus 30% for the repairs and maintenance. So dude, they're just killing us on unit turns. Our units would sit vacant for months. They were putting in lower quality tenants because they just wanted to fill them very quickly. They weren't pushing rent growth on it. Right. So we were, we were just losing money with it. So we had to make a really hard decision and we did this as husband, wife. We said either we're going to sell all this and get out of this game or we have to build our own management company. And my wife took ownership of that. So shout out to her. And she built that management company from scratch at 87 units. She would go in, she would freaking move people in, help move people out, she would freaking paint the units if she had to. As I was running the other business now we have a team of 10, right, 377 units. But the money's made in the management, the operations. Third party managers are not there to make you money, they're there to make themselves money.

[B]

That's really good, dude. So we self manage all of our boutique hotels and the short term rentals because of the same reasons that you mentioned. I believe that no one's going to manage better and operate better than you are as the actual real owner of the property because no one's going to care more than you. But I agree, it's funny that you said like these PMs are going to like make their money with, with all these, you know, contractors and all these jobs and tasks. I am almost taking the management of my boat in house. So I use third party management and dude, it's the same thing, man. It's like, it's like they, they will pay their guys 30 bucks an hour when, when you know, stuff needs to be fixed and worked on in the boat and the boat game, stuff's always breaking. And we'll get these invoices at the end of the month from this company that manages and the management isn't, isn't, isn't too bad monthly. But it's, it's these jobs, right? So bow thruster goes out, needs to get fixed. Swim platform hydraulic goes out, needs to get fixed. And so all the manpower, they pay their guys 30 bucks an hour and they're charging me 150 an hour. That's a big spread, you know. And so, so I'm like, damn, like the money that we're spending on the management of the boat, I'm like, I might as well just hire a full time employee that's like just dedicated to the, the boat, keeping it clean, keeping things running, fixed maintenance, all that sort of stuff. And that would save me money. So I'm thinking about just doing that in house now. So that's how you get you. I got a guy now, it's like, okay, well we could probably manage a couple of their boats and then bring use that as income. So I don't know, it's, it's, it's to your point, third party management, there's a lot of fees baked in and no one's going to operate better than you with our property management business, our hospitality arm, it's called Summer's Collection. And you know, we don't do it to make a profit, we just do it to get full control. If there's something that's underperforming at one of the properties, we can, we can meet real time here in the office, come up with a game plan, pivot, and then we're off to the races. And it's not all the back and forth that you have with property management because when you start party, you still have to manage the property manager. And that's what a lot of people don't realize. They think, hey, I'm going to get in the game, I'll just hire a third party pm. It's going to be hands off, it's me passive income. Like no, no, no, you got to manage the property manager. And that's, that's a weekly meeting with weekly KPIs. Monthly KPIs. And if that's not going according to plan, like you got to get more hands on and shoot, you might have to pivot to another property manager, which is a whole nother headache that you got to deal with now. And so sometimes it's like you might as well just self manage.

[A]

That's what people don't understand, bro. If a property management company is at scale, they're managing thousands of units. Maybe you only have 10, 15, 20. You really think they care about your 20 unit and your noi?

[B]

They got a lot, they got bigger problems to solve because they can only

[A]

make money at scale. And a lot of people think like, oh, I'm only paying 5% a month. Yeah. But everything outside of that, that you're losing the money on and losing the noi on. So you just cannot survive with third party management.

[B]

Yeah.

[A]

Doesn't exist.

[B]

Yeah, yeah. So with your property management company, do you guys, are you guys planning to scale that you don't do? You don't do third party management at all. Just your, your own stuff, right?

[A]

Yeah. No, I would not scale it. It's, it's a business we didn't want to create. It's a business we had to create because like you said, you have to bring the management, the operations in house and also that too. You think you're really going to be able to manage a third party management company? No, absolutely not. All I always remind our property managers, we are a sales company. You are selling that unit to that tenant. You are selling that renewal. You make your money by keeping the heads in the beds. You don't make your money when someone moves in. You make your money on the renewal. Because when people move in or when a unit becomes vacant, you have to lease it, right? So you have to pay leasing, you have to pay marketing, you have to pay unit turns. Dude, that's where you lose your money. But when a tenant renews, you avoid all of that cost. So you make all your money on the renewal. So you need to be training your manager, your leasing staff. Like, how are you selling the tenants on this? Right. If you're not controlling that, that's another big no. I loss to where when tenants move out, vacancy unit turns leasing. Those are. That's money you're never getting back.

[B]

What kind of things do you guys do to market new units when you need to lease them up?

[A]

Yeah, that's a big thing. Number one thing that my wife and her team does extremely well with is stacking renewals to where they're coming in spring and summer. Because you never want to deal with renewals in winter. Right. Or trying to lease units in winter. And also, too, when they know a tenant's moving out, they start marketing that unit 90 days before. That's something else third party management won't do. They'll be like, oh, Susie moved out two weeks ago and we didn't notice. We'll get there in another week to get into the unit. So you're just losing so much time. We start marketing 60 to 90 days before that tenant moves out. Our goal is the day they move out, we have that unit turned ready, cleaned, prepped within two days next to next tenant moves in. That's a big thing, is being proactive and working your rent roll and knowing your rent roll and working your renewals. Yeah, that's where the money's made, man.

[B]

Yeah. What platforms do you guys like to, to market on? So we know there's like apartments.com, you got Facebook. What are the best platforms out there? You guys like Facebook?

[A]

Marketplace is really good if you're just starting, right? But you got to, you got to hustle that, man. Apartments.com is really good. The nice thing about apartments.com, you don't have to commit to like a diamond level, like high crazy tier. That's what you DO on the 100, 120 units on your smaller sub, you can do like a three month package. If like, hey, I know I have two leases coming up. I'm just going to do a three month package so that way you're not busting out like a 3 grand, 4 grand marketing budget for that. Something else we're doing a little bit we're testing out is Google pay per click ads. And we're having our property managers are leasing people put it on Tik Tok, Geo tagging it do. We're getting tons of leads from Tick Tock, doing those little, you know, unit turn or unit upgrade walkthroughs. That does really well too. And then they're booking things off.

[B]

Tick Tock, dude. One of the things we did with this, this 32 unit building, we bought it in, in late 2019 and this is out in Indianapolis. And dude, covet happened, right? 2020, early April, I believe March, April. And we're like, oh my gosh, we just, we were renovating all these units and our vacancy was dipped and then we had to lease up all these units and then covet happened. So everyone's on lockdown. We're like, damn, what are we going to do? And we would test the third party property management company and you like submit a form online and, and no one would get back to you for like five, six days. And I'm like, dude, like, we're never going to lease up units like this. And so we took control and matters into our own hands here in San Diego. And so what we did is we created listings on, on Craigslist, Facebook Marketplace. And what we did is I had the idea to, to basically hire a third party real estate agent in the local area of Greenwood, Indiana. And so you can go like on Zillow and see who the most active like real estate agents are as far as transactions. And I found this like younger girl that lived like half a mile from the property and I just called her and I said, hey, I'm not interested in buying a property from you, but we own this 32 unit building like literally down the street and we need someone to help us lease up these units. We can give you a flat commission for each unit you lease up for us in exchange for like helping us, you know, basically do these property tours. And so I was like, we're going to handle all the marketing and we're just going to take these leads. When they're ready to tour, we're going to introduce you to them and then all you got to do is show up, do the tour and then once they're ready to move forward, we're going to hand off the new tenant or the resident to the property management company. They're going to do all the onboarding and the lease. And so she was stoked because this is extra income for her. And so, and so anyways, we just did all the marketing on the third parties, Facebook, marketplace, Craigslist, we fielded all, all the inquiries and then once they're ready to set up the tour, we would just loop them in with this girl and she would show up doing a property tour and then, and then close them and dude, this leased up all the units and boom, next thing you know we are 100 full and then we ended up selling the property for this, this profit. And I see all this in that there's always going to be issues that pop up with third party and one of the biggest issues that we found was they're not going to care to lease up your units. They don't have alignment of interest to do so and, and nobody's going to care as much as you do. And so when things arise as an owner, you got to get creative, you got to get shifty. Even if you're out of state, it's like, hey, we still figured it out. We're like, cool, let's try this, let's see if it works. And guess what? It worked and, and it got us leased up. And so a couple things here, a couple takeaways. I think number one, you know, if, if you're worried about getting in the game because there's going to be risks and there's going to be things that pop up that you don't know if that you're able to push through and get through. All those risks are real. So put some weight on them and things are going to pop up. When you get in the game, it's inevitable. But if you have the wherewithal and you're in the right room and you have the right resources, you are going to figure out ways to, to get through these things. Number two is yes, property managers and using third party like they suck. But if you're a savvy owner, like there's still ways around it if you don't want to self manage, you know, and you might have to get a hybrid like model like what we did, we were very hands on. We had to get creative, we had to get shifty. But we found a way to still work with the third party. And us being out of state during COVID when Everything was on lockdown. We still figure out a way to lease up the units by getting very creative. And so couple takeaways there, you know.

[A]

Yeah, you have to be willing to get creative. And like you said, two things. We, we do the same thing. So we own a brokerage in, in the state. So we either use our agents or we put it on the MLS for other agents. Most like, I, I forget the, the statistic. I think 95% of real estate agents fail within five years. Right. Most real estate agents are starving, dude. So if you're like, hey, I have 33 units here that you can go lease up and it's Average rent is 1200 bucks. I'm gonna give you 600 bucks, dude. That's great money for them, Right. Because they're probably not selling very expensive homes. Right. And homes take months to sell, so that's, that's huge. We do the same exact thing always. If you can put it on the mls, don't be cheap because I'd rather get it full in one month versus sit vacant for three. Right. Because vacancy is an noi killer. You never can make vacancy back. Right. So that's number one and number two, like you said with the third party, they might even try to fill it, but they're not going to push for the high end market rents because they want to fill it quickly to just get it off their plates. So that was another big issue we would have. They would be filling them. We knew market round was like 1200 bucks. They would fill it at 950 and be like, hey, be happy it's full. But you're like, I'm not getting to my business plan. I'm not getting to that cash out refi because I'm not pushing the noi. So when we started like banging in the cash out refi as we've done 5, 100% refi since 2021. We're going in our six now. It's when we took over the management operation. So if you want to get to that faster, you got to control it.

[B]

Yeah. And when you say 100% cash out refi, you mean pulling all your money.

[A]

100% of our original invested capital.

[B]

That's really good. That's really good.

[A]

Thank you, man.

[B]

So when you're underwriting, analyzing these multif family deals, you're looking at the T12. You're also looking at the rent roll, I imagine. Yeah, yeah. And those are really the two only things that you need. Right. Everything else can be found on costar.

[A]

I mean, dude, that's it. You need a T12 and a rent roll. Like an om's nice, but it's like 90% fluff.

[B]

Fluff? Yeah. It's going to show you the things

[A]

that you want to see, like photos of palm trees. Like, bro, I don't need to see. I know there's palm trees in Florida. I don't need.

[B]

It's a lot of fluff. And I think someone said, someone told me a long time ago, they said, they said OM is Latin for like for lie in the broker world. Because it's just, it's just all this fluff and it's like, yeah, the employment sector is. And this and that. It's all this, it's all this fluff you got to go through. It's like, no, just give me the T12 and give me the freaking rent roll. And even sometimes that's hard to get. You know, some of these mom and pop owners, they might not have any accounting. They're just doing cash like basis stuff. And they're not like, yeah, their shit's all like make belief. And it's like that, that could be tough too. It's like, well, okay, like if you don't have a T12, like, we're going to assume the worst, you know, and it's going to make it hard for us to get financing on the back end. So we're going to assume the worst. But if you can come up with the T12, you know, and it works, you know, in your favor, we might but have come on offer price or come up and offer, offer price. But anyways, anyways, what are you looking at when you analyze these deals? T12, rent roll, what are you looking at? How do you underwrite them?

[A]

First thing, I just use the basic napkin math and do. I've bought deals where the owner literally scribbled things on the back of napkins. Hand to God. Off market, everyone wants value add. Everyone wants off market deals, but they don't want to deal with the off market problems. It's off market for a reason. It's not organized, it's not clean, it's not professionally present. Like a broker. Before a broker will list the deal, they're going to vet it out, right? So if it's a total like crapshoot, right, and there's no strong financials and all that, they either won't list it or they'll significantly reduce it. So everyone, the big misconception is like, oh, off market's a great deal. It is, but you gotta be willing to get your hands in the weeds there and figure things out. Like, dude, we, we've done, we've dealt with sellers who didn't have those things and we've had to like piece together utility bills and all that. So if you can get a T12 and a rent rolled, bro, your money, the number one thing I look at is number of units multiplied by the rent growth multiplied by 12 months, 12 months in the year divided by the cap rate. That's the thing. I know If I've got 10 units and there's 500 of rent growth, whatever that number is, right? 5,000 multiplied by 12. Actually 6. 6. 60 grand for the year. 60 grand divided by 6% cap rate, I can make a million bucks on that deal. A lot of people spend so much time like trying to get in the weeds with underwriting. Like, dude, number of units times rent growth. If it doesn't pass that test, I'm not going any further. I think a lot of people, rich, try to over complicate it to end up not taking action. Right? Keep it simple, silly. Number of units, rent growth looks good, good location. If I've got enough upside there, dude, I'm going to do the deal, then I'm going to do my due diligence. Then I'll walk all the units, then I'll worry about the nuances, then I'll, then I'll get the P L. And back to what I was saying earlier. If on that P L on income, it's only rent, now I'm even more excited. So I'm getting 500 of rent growth and there's no pet fees, there's no ratio utility billback, there's no late fees. Now it's even better. I think one of my biggest advice for your, your listeners, look for reasons to do the deal, not for reasons not to do the deal. So many new investors, like, oh dude, there's dirt on the floor. I'm not doing the deal. Yeah, dude, it's, it's tenants, right? They're, they're renting it. Yeah, all good. But look for reasons to do the deal. And that's why keep it simple. As humans, we try to over complicate things to give us an easy way out.

[B]

That's really good. And how do you approach the due diligence once you get a deal under contract?

[A]

If I go under contract, rich, I'm doing the deal. Like there's got to be something dramatic for me not to do the deal.

[B]

That's back to what I said, something that pops up in Due diligence, where you're like, hey, like, this is crazy. You can still retrade.

[A]

You can. That was that. I love that. Like, when I bought that 56 unit, they didn't tell me the roofs were shot. So you know what? I get to say, hey, hey, broker and Mr. Seller, you didn't tell me the roofs were shot. So when I underwrote this, I didn't account for the roofs. So if they don't tell you, dude, that's fair game. They call it retrading. Dude, you didn't tell me. So if you didn't tell me, I didn't know. So don't, don't get discouraged by that. Look for a way to get a credit. We got, we got the roofs credited on that.

[B]

And this is very important for, like, the listener listening right now. In commercial real estate, it's very important to know when you can retrade and when you shouldn't retrace. So let me give an example. If you're underwriting a deal and on the front end, the broker and the seller say, hey, the roofs all need to be replaced. And you should factor that into your underwriting before you make an offer. But if they tell you, hey, and I always ask the brokers or the seller before I get into like, you know, an loi say, hey, like, is there any deferred maintenance or any expensive capex items that are nearing the end of their life cycle that I should be aware about or aware of? And if they say, hey, like, everything's good to go, like, nothing that I'm aware of, cool. So we're going to submit an offer based on those assumptions. And then if we get into our physical due diligence and we, we realize, hey, the roofs need to be replaced, all the H vac units are at the end of their life cycle, those are going to need to be replaced, then guess what? That's a reason for retrace. But if they tell you up front the roofs need to be replaced, the H VAC units are at the end of their life cycle, they're all 23 years old, then, like, you should factor that into your purchase price on the front end. And then you get into the physical due diligence and you realize, hey, the roast bag, well, guess what? That's not a reason to retrade. And so this is very important because, you know, you can rub these brokers the wrong way, you can rub the sellers the wrong way. If you are retrading for the wrong reasons on stuff that's already Been disclosed. So don't be that guy.

[A]

100 like you said, you, you got to ask it up front. Should always ask multiple questions upfront. Why are they selling? Right? Why are they selling? What's the story here? What's the story of the deal? How long they own it, what's going on? Any major capex that I'm going to have to do in the first few years and if they say no and you find something, dude, it's a win for you because now you can negotiate to get them to pay for it. You take over the deal, but you do it. So when you go to cash out refi, you're like, hey look, I did all the roofs. So it's a win win. That's what I'm saying. Look for reasons to do the deal. Don't look for any little reason to back out because then if you back out for something they told you about or something that's just super random and doesn't make sense, brokers go, I'm not dealing with you.

[B]

That's really good.

[A]

Who does the broker work for the deal? Not you as the buyer, not me as the seller. The deal. The broker only gets paid when that deal closes. So if you go 90% of the way and you don't close it, the broker doesn't get a participation trophy. So you also have to know what's in it for them. They need to close that deal. And if you close the deal, they're going to do more deals with you. That, that's how my wife and I built our portfolio. Because on those early deals we close them. There were plenty of things wrong and there are probably some instances I wish I would have negotiated a little bit harder. But I'm so glad I did the deal because that deal led to the next deal and the next deal and the next deal. Brokers are the lifeblood.

[B]

It's everything. It's everything. I mean, I told you example of the first broker that sold me 11 unit, I became close to them. He brought me the eight unit deal that we bought and then now him and his wife invested us. And when I, when I sold both of those deals, guess who sold them? He did. Yes. And so it's huge. And then when there's things that come up and you get these repair credits or you can get a reduction in price. I like the repair credit generally speaking. Right. Versus the reduction in price. And then, and then like you said, then you do the work, don't let them do the work. A lot of these sellers might say no no, no, we'll. We'll do the work.

[A]

I got a guy back, my cousin will do it.

[B]

No, no, no handyman's going to come in that doesn't know anything about H vac is going to do it. It's like, no, no, no. You control the work. You do it the right way, which is always the best way. Tony, this. This episode has been amazing, man. Appreciate you coming on. Dropping so much games, so much value. Where can the folks get in touch with you if they want to learn more about your YouTube channel, everything you're doing? And more importantly, where can the folks get in touch with you if they want to learn more about everything you're doing on the multifamily game?

[A]

Yeah. So first off, man, shout out to you. Shout out to everything you built here in this platform you've created. It's amazing for you. Just genuinely wanted to help people. You're super genuine, dude. Dude. So we appreciate you, of course. So, number one thing, just Tony Stefan everywhere. Tony St. On YouTube, go follow my YouTube channel. And we truly believe every single family in America should own one small multifamily apartment. One small multifamily apartment will change you in your family's life if you do this burn method. So we do offer mentorship. You can just go tony7.com, click the coaching tab, Apply for mentorship. Anyone who comes from your podcast, dude, we're going to hook them up. If, when they apply, it'll put. Where did you come from? Put Rich Summers on there, dude. We'll give them 30% off.

[B]

30% off for the listeners.

[A]

There it is.

[B]

And again, if you listen to this right now and you're like, man, I'm stuck. I don't know where to start because there's a hundred ways to make money in real estate. I started in multifamily. I think it's time tested. It's evergreen. It's one of the best places to start. So go check them out. Tony Stefan, I'm Rich Summers, listeners. Thanks for tuning in. We'll see you guys on the next one. Peace.