How to Invest in Multifamily Real Estate on a Middle-Class Salary

this is the BiggerPockets podcast show 752 I'm Lee Yoder and I was able to become a real estate Millionaire on a middle income salary and I believe you can too what's going on everyone this is David Green your host of the BiggerPockets real estate podcast here today with my co-host Andrew Cushman who's also one of my very good friends and also my partner in multi-family investing we brought him on because he's an expert in multi-family to help interview today's guest Lee Yoder Lee has a fantastic story and you guys are going to love today's episode Lee talks about how he took a big pay cut to keep his job but got time back to start investing how he got his wife on board to support him in his crazy real estate dreams and how he's bought several apartment complexes and is ready to buy more all while making a middle income salary Andrew how are you today man you know what I'm talking real estate with you business is good I'm healthy and it is snowing like crazy in the mountains I'm going to be skiing to August so I'm feeling better than the people you see in pharmaceutical commercials this is that's awesome man this is Andrew's like checklist of everything you want in life as long if there was good waves added somewhere to where you could be surfing this would be your holy Trifecta you know what my goal sometime the next month is to go surfing in the morning and snow skiing that same afternoon so I have no doubt you'll hit it as you seem to hit all of your goals speaking of which house our apartment complex is doing it's uh well ahead of proforma just sent all that information to uh to the lender to let them know hey guys we're doing great you don't need to worry about us all right like that you actually I think I owe you a personal financial statement I gotta get on that because I did see that email the other day but enough about us let's talk about today's show what was your favorite part of today's interview yeah I want to highlight there was a lot of favorite Parts Lee really dropped a lot of fantastic information especially for those who are just kind of looking to get started or use this downturn as as an opportunity to to wedge in it's been really tough to do but one of my favorite things is that Lee found his original mentor on Bigger Pockets alright so everybody listening you're in the right place already uh all you've got to do is just make use of it it's great to listen to the podcast or watch the Youtube and suck up all the information but to really get the benefit go on the forums and interact with people go to bbcon and meet people in person go to the local BP meetups and get to know people that is how Lee got his first Mentor that helped him through his first deal and that guy has continued to invest with him to this day as he's grown his business and that kind of leads me to the quick tip which is stick around to find out how Lee used networking relationships and then Loop net to break into the business and find out you know you've heard Loop net is where deals go to die but in actuality you could use it as your secret weapon to get into multi-family there you have it if you are also on a middle income salary and want to figure out how you can get deeper into real estate investing this is an episode you do not want to miss we just asked if you enjoy it would you please leave us a comment on YouTube and would you share it with somebody else if you enjoy these shows which I really hope you do you could also leave us a five-star review wherever you listen to your podcast at those help us a ton all right let's get to Lee today's guest is Lee Yoder Lee is an Ohio Farm Boy turned physical therapist that struggled like many of us do with finding a job that was good for him and worked for his growing family he had a great opportunity to scale the corporate ladder but took a step back taking a 30 percent pay cut to do so this allowed him to buy his time back and start his first flip which was the Catalyst to his investing Journey Lee believes anyone could follow his path for starting a real estate investing side hustle while working a full-time job and getting your spouse or partner on board growing his portfolio to 34 units and then actually completely sold off his portfolio to reset his priorities Lee is now a general partner on 283 units and has unlocked his true investor potential Lee welcome to the show David thank you excited to be here yeah and my co-host Here Andrew Cushman uh it almost sounds like I was reading his origin story he'll be chiming in later in the episode to talk about how he started with flips and realized that his heart was in multi-family investing so that's interesting okay thirty percent pay cut let's start with that what did life look like for you at that time how old were you what kind of income was this job bringing in for you and why were you okay taking a 30 pay cut yeah good good question David um well you know because I saw you know a bigger better path I saw the dream of of um real estate and the life I thought maybe could ride us but also David because we were living below our means so taking that it was like 30 30 maybe 30 000 uh Dollar pay cut and we we still could have the life we could still pay for everything we could still you know we really didn't have to change our life very much so um that's kind of an important step if you can live below your means maybe you can go do something different make make some decisions that you wouldn't be able to make if you're living paycheck to paycheck and and you need that but but we just put ourselves in a position where you know we weren't spending um all of my paychecks so we had the ability to do that we didn't have to change our lifestyle because I took that pay cut so that was kind of a first important move you know we were Just Smart Financial I think you know got a good payment down payment on our house didn't buy you know too much house for us so we were just in a position where we were able to do that so it wasn't like we had to change our lifestyle in order to do that that is such an important point to note you hear all the time when people ask how were you able to quit your job or downsize how did you how did you find the time to do it well sell your BMW get yourself a Civic right get out of that that four bedroom house with a forty five hundred dollar a month rent and go live with your in-laws uh there's ways that you can do this if you're willing to make the sacrifice it all just comes down to Pleasure and Pain and how bad you want it I'll I frequently use the example that wealth operates on a spectrum on one end you have comfort on the other end you have profit like the closer you can get to profit the more that the better you'll do but it comes at the expense of comfort you're gonna give up comfort and all the people I know that were blue collar workers that made it they all had that same pattern so if you're asking yourself the question of how do I do what lead did just understand you got to be tough you got to start off with understanding you're gonna make sacrifices and I love that you and your family just decided we're going to live beneath our means so we can do this so thank you for setting a great example I'm sure I'm interested to hear more about what your next steps were so walk us through that first flip experience what was it that was it what you thought it would be and did you come away with any lessons on that yeah it definitely wasn't uh what we thought would be it definitely wasn't what I sold my wife on uh because you know I'm listening to podcasts learning about passive income and you know how you can get into real estate and you know let your money work for you and do those so I'm selling my wife on the dream and no when we got into the flip that's that's not what it was and she reminded me of that uh we so we both won our lesson and she helped me learn that lesson it's hard to just jump right into multi-family especially the bigger stuff so flipping can be a great way to get started so um yeah I mean so many stories there David I'll let you guys lead it but um it was it was what a lot of people say it was just a different job so you know just kind of high level you know I took that pay cut um and and we made about that much back with the flip um and another reason I left I didn't really set this up but another reason I left that corporate space and was was looking for something else was just because I was wanting to get more time back with my family more flexibility more freedom and I got that when I when I left my corporate job because I I didn't even go all into real estate I left and went back to doing Home Health Physical Therapy uh which I had done before which is a job that offers a lot of flexibility which offered me the ability to do real estate on the side and start this real estate side Hustle but I just didn't make near as much as I was making the corporate job but now I had all this flexibility but then I filled in all that time with this flip uh and it was very time intensive I I did a lot of the work myself because I was scared and you know we didn't have a lot of money and I didn't know the contract just so we just did a lot of it ourselves and so it was just kind of interesting I felt like God gave us this picture of like hey this is what flipping's like because I took this pay cut bought up you know got a lot of my time back but then filled it all with a flip and made that money back with the flip so it was like I gave up this really busy job for a not so busy job but put a flip on top of it and I was just as busy and made the same amount of money so I want to say two things number one to you know where Lee I don't know if you probably know this but you're talking to you know David Green who has the Olympic gold for living below your means right I'm a guy who was making six figures as a cop and sleeping in his car that's right or you know and and then he then he then he graduated to renting a room from a dude um so for everybody listening you know listen to Lee's example it doesn't have to be that extreme if you can do it great but you know if you're like well I'm not gonna live in my car and work 18 hours you know a day I can't do that listen to what Lee just did he cut back 30 percent freed up a little bit of time and then went and did a flop to supplement that so in terms of that flip League could you give us just real quick run through the numbers on that and uh maybe buy rehab sell like what was your true net at the end of the day yeah this was uh back toward the end of like fall uh of 2017 so just to set it you know it wasn't wasn't today uh but I bought a house in our hometown I bought an online auction um kind of sight unseen now I I did go to the site and and look around you're not really um you know supposed to do that bought it for eighty thousand dollars put about 70 uh thousand into it so into over 150 sold it for 190 you know take out uh agents commission stuff like that we made about thirty thousand dollars on that so that's where I said like we took I took this 30 000 Bank cut um then added the flip on top and made 30 000 with the flip and so we made the same amount uh so it wasn't any different but again I'll just say but it did get us into real estate it did get us started and so for everyone listening what is your hometown uh Lebanon Ohio just north of Cincinnati Ohio okay so you so what you're saying is you can you can successfully do flips and multi-family even in the midwest oh yeah yeah believe it or not especially now as the economy might be turning you might look at the Midwest no yo you're absolutely right and that's that's when I said you know a lot of times that's especially when you're getting started it's like oh my you know my my Market's too expensive if you live in San Francisco or I'm in the midwest nothing happens here that's not always true you just have to adapt your strategy and leave you've done a really good job of saying you know what I like my hometown I know my hometown which gives you an advantage right and then you've made both flipping and multi-family work there so so good job uh thank you so Lee how did you find this first flip yeah just um you know I mean I was on Bigger Pockets at the time a ton and um listen to what other people are doing and just looking around online like I said I found this one on an online auction um I think it was auction.com or xoomzoom.com one of those just just found it online I was just looking online for deals looking on Zillow found this one dot it was a pretty good deal compared to the other stuff I was seeing all right and then did you negotiate it like through an online auction yeah I mean not much negotiating I mean just you know I ended up with the highest offer uh you're just bidding and right and um when it went a little bit higher and I told my wife I'd go and uh we we went and jumped in and then what did you do when it came to getting like contractor bids how did you decide what the rehab was going to be yeah again um just referrals I mean I think that the only way especially when you're in starting it I mean how do I know who's good you got to go with referrals so I start calling around and um I actually one of my first kind of mentors um through Bigger Pockets I just saw that he was in my my town Lebanon um he was here doing stuff I had rentals you know was talking on Bigger Pockets so I said hey can I you know can I meet you sometime and we met at McDonald's here and um I mean go to the store just fast forward the guy has invested with me in a couple of my syndications and and he's a good friend of mine um but he helped me get started and introduced me some contractors so uh that's the way to do it is network with people in your area bigger box is the best place to start that's a great point and people always ask the key to networking and the answer is usually just well don't be a butthole you know just be someone that people like and it's amazing how the difference between a contractor or a referral you'll get from someone that likes you versus the person who doesn't know you at all or sees you his competition or doesn't trust you like it doesn't work as well so just personal development is like the first place to start when it comes to getting good referrals so let's let's hear about the next deal so you feel that house your wife is now not anti-real estate because you made thirty thousand dollars I'm sure that you're holding your breath because if you lost money on the first one that's like a death sentence you can never get out of that might be done right so what was your next deal yeah um so the next day we did at duplex we actually got this at the county auction um you know interesting enough I just brought or just brought that guy up I was bidding against him at the auction um and and I and I beat him out he he quit bidding and then um I mean fast forward again I end up selling the property to him uh once I was done with it but bought this duplex in Lebanon for ninety thousand dollars um it was it was rough it uh one side was vacant the guy that lost it was moving into a nursing home so he was going to vacate but then his like niece and a couple other guys they were squatting in it um so very interesting takeover on that one I've got a good story but I bought that at the county auction for ninety thousand dollars this was now in in the fall of 2018. okay did you pay cash for that since it was at an auction yeah yeah I I did mention that on the the flip so we use the home equity line credit so our house had gained some Equity we've been living in our house by the time we did a flip we've been living our house for five years bought in 2012 so good time to buy right um and so we had a good amount of equity so we used to have a home equity line of credit on both of these and you know we got all that back after the flip plus 30 000 so we had more to put into the duplex okay and did that flip go well as well yeah that one went uh much better so now I knew some contractors I mean this is you know a big part of anybody's story you start building momentum you know each each deal you do that's why people say you've just got to get started because you can't start to build momentum unless you get started so I knew some contractors I met some more I kind of had a chance a meeting of some contractors that are actually still working with us today uh they came out to buy some kitchen cabinets that I was selling because they had a few in there and I didn't want to use them so selling them they came out came out in a rickety green van with a bunch of supplies in and I was like uh what are you guys doing you know oh we you know we actually renovate units up in eight I'm like well would you do this one and uh end up doing great work for me so um just had more help I did a lot less of the work but yeah we're just more sure of ourselves we had more reserves you know we that thirty thousand we made we didn't need to spend that we're rolling that into the next deal so I had some more cushion and and so we felt more comfortable having other people do the work so much better experience David you said you know if I lost money on that flip my wife would have been out and that that's true but I kept saying I had to prove two things to her one real estate can make money and I did hit that one one but two real estate is going to provide a better life for our family and I missed pretty badly on that one so in the duplex I felt like I hit both on the duplex we ended up making money and it was you know more hands-off and we we set passive income so once we did we completely guted both units and renovated them but then we got a couple uh residents in there and we were you know we landlorded that when we we managed that one ourselves and we saw not much obviously just on one duplex but we saw a wow every month the income is more than our expenses and we started to see okay this is more like that passive income lead that you're telling me about you know the dream that everybody on bear box is talking about okay I can kind of see it and so this one you know I ended up convincing a little bit more about real estate with this deal I'm gonna take us a little side shot I want to go too far down this road I just want to get your honest opinion about this there's no judgment you mentioned the phrase this passive income that everyone on Bigger Pockets talks about I mean I throw this to both of you guys have either of you experienced the income being as passive as it's talked about on Bigger Pockets on whatever social media follower that you look at or as your experience been that real estate isn't quite as passive as maybe the dream that you got sold I'll start with you Lee um yeah I'd love to hear what Andrew has to say on this one but um I would say as long as you're the one if you're I mean it sounds good to say but as long as you're active if you're the one going and getting the deal and signing on the loan and having anything to do with it even if you buy a turnkey property but you're the one owning it it's not going to be that passive and there's different levels of being passive but um so no I have not but I've I've chosen not to be passive um so yeah even when I talk about passive I mean you know maybe a little bit less work but we've always been the ones buying the property and even if we we've always used uh third party management after this duplex but yeah we're still actively asset managing so I have not experienced it but for our passive investors I've seen them experience it so you can get that but not if you're the one buying the property and signing on the loan and being you know the asset manager no it's not going to be passive Andrew what do you think I would say uh my answer is absolutely yes and heck know at the same time it depends on what you've bought and who you have on your team running it so you know early on when we were getting started in like 2013 we bought some rough sea properties and rough parts of Dallas and I can guarantee you there was absolutely nothing passive about that uh there wasn't a day that went by that that property was passive on the other hand we've got properties that we bought four or five years ago we already did the value add we've got a great team in place that's been there for a long time and candidly you know at this point we can manage that in a half an hour to an hour a week and they in you know in in those properties spit off pretty incredible income for that that amount of return so I would say you it's selective and part of it is based on how you set your business model up and your relationships and your team and what you buy and then also how patient you are almost nothing that I have purchased has been passive from the a get-go I can't think of anything that has been but we if you're looking out long term and you get past those first few years then it really actually can become passive so for me yes and no thank you for sharing that and also thank you for putting all the work in that you do on these deals that we own together so that I don't have to do it it's true it's passive for you right yes yeah that just made me think of a book I should write scales of passivity yeah I like it yeah no that's a real topic that really is and the reason I bring that up is I know a lot of our listeners is they're hearing this conversation they're beating themselves up they're going through this internal turmoil of Shame and guilt and feeling unworthy because either real estate was harder than they thought it would be or if it's working it still requires so much of their time and tension and energy and they're like well I thought it was supposed to be something that I just said it and forget it I never have to do it again the problem must be me I like hearing from each of you and I'll throw you know my two cents in there it's not passive it's passive ER it's more passive than when I was getting shot at or you know chasing somebody or writing a report for four hours in a in a room somewhere but it is definitely not passive and so don't think you're doing it wrong if you're not on the beach drinking my Tides all day long and you catch yourself getting sucked into emails and phone calls and with your laptop open uh very little in life is completely passive I think I think that's just a in general it's an error a lot of us make we think when I get married I'm not going to have to worry about my relationship anymore I'm done but both of you guys is married men are like what doesn't work that way yeah it's probably I probably have the more passive love life than either of you do not being married right um so thank you for that uh lee is Shifting back into where we were on your story here what was your Mount Everest and who really helped you to get there yeah I would say my Mount Everest David was the next deal um you know jumping into real estate is is usually a Mount Everest it's a big deal and it is hard to get started so I'll say that but but after the duplex we were ready to get a multi-family again I'm listening to BiggerPockets podcast and I remember Andrew being on very early listening back then I'm like man these guys like that's what I want to be like I I want to do what they're doing eventually so I they keep telling me Go bigger faster like you can do it Go and so that's the way I was looking so we ended up getting into a 16 unit um and that seems not so big today but back then that was absolutely Mount Everest if you know if you've just done a flip or duplex a 16 unit is probably a Mount Everest to you it was to me uh what got me over that hump David was again more networking uh getting involved and and you know I think I heard somebody on Bigger Pockets mentioned get into your local Ria so I looked up our you know that's a real estate investment Association of your city every city has one I looked up the one in Cincinnati um they actually were running an apartment focus group uh at the Ria uh meeting at a LaRosa's Pizza which is a Cincinnati pizza shop um every uh one Monday a month so I started going to that and the guy there was teaching us how to underwrite multi-family and just using a very simple spreadsheet uh but it was good for small multis and started teaching me and I found more and more confident so I'm just going on Loop net looking at properties that nobody wants underwriting them calling the broker and and just kind of going through the motions and just felt a little more and more confident about I mean even I'll say this even you know calling on a property and feeling like I think this is a good deal I'm not going to call this broker and calling them and the broker going oh yeah you know that's already under contract we had a lot of offers even that was like oh man that that gives me more confidence because I picked out a good property because I thought that was a good deal and and it's already taken like man okay I'm getting this so just going through those reps and you know I've heard so many of them Bigger Pockets talk about that like man you need to underwrite 100 properties to be good enough to find one um and so that that kind of stuff gave me confidence you brought up something that I think a lot of people looking to transition into multi-family question or struggle with and that is I'm I'm just starting out I don't have a huge Trek for a track record um I'm not going to lie to Brokers or pretend that I'm something I'm not but what you know someone who's just trying to make that transition that you made what did those first broker conversations sound like like when you first introduced yourself and you're like hey I'm Lee I've either done a duplex or just a 16 unit like how did you get them to give you the time of day and show you the deals because obviously you've gotten a lot further past that but what did that very beginning piece look like yeah I'll say two things to that Andrew one um so the guy that was teaching me uh to underwrite Mark you know I I was using him and he was fine with that he was helping me on the right so I was saying you know me and my partner we own this many and Mark didn't have much either he had bought a 25 unit and a 40 unit I think at the time so we own 65 units so if I'm looking at a 16 unit okay if you bought a 40 and a 25 you and your partner um and and you know fast forward Mark did end up I did give him a piece of my deal so you know I wasn't lying by any means uh but he was the one helping me underwrite so I was I was using that so leveraging a partner or a mentor I think is a really really good step but then two I'll just say that you know some people wouldn't give this advice but I heard back at the time loopnet is where deals go to die and I remember thinking well that's probably where I should be looking then because the Brokers aren't going to take me serious so I'm not going to get the best deals so I'm gonna have to this is how I'm gonna get in I'm gonna go get these deals that nobody else wants and I'm going to put in the time um and and that's where I'm going to get started and uh so you know frankly when I was calling some of the Brokers they they were picking up my call because no one else was calling about the property so they're like hey I don't care who you are you know you're the only one looking at this so we'll give you a shot at it and if you seem serious then we'll take you serious and so I had the partner and we you know went forward let's dive in briefly about that and then I want to ask you about your wife and uh how you took steps to change that mindset there when I hear about Loop net because I don't spend as much time looking for multi-family deals as either of you two do I get this picture of Rey from Star Wars going through a scrap yard of old uh spaceships that don't fly anymore and trying to find parts that she can go sell for food right is it that bad What analogy would you guys use to describe what it's like to find deals on Loop net and then what advice do you have for other newer investors just like you said Lee where this is really like their only option how would you tell them to navigate that to look for for opportunities yeah Andrew you want to think that what would you say about it Andrew so I'd say a couple of things one it is basically Ray going through the scrap yard of craft games um but however kind of like kind of like Lee Lee had the exact right mentality he's like well everyone thinks Loop Net's worthless so I'm gonna go do Loop net because no one else is there and that that's really how he gets started um so I can do a real quick Story one of the best deals we've ever done I bought off Loop net because the markets that we invest in I have alerts set up again just because I want to see what's going on I want to learn the market who's listing what what's you know what are the prices and all that well one day I got an alert and I looked I'm like I've never seen that broker's name before called the guy it wasn't a broker it was the owner he put it on there himself okay four days later had that under contract I'm out there doing due diligence and local contractors saying how did you get this yeah we've been trying to get this property for years right so you know is it just like you know you you can you find you you know Ray found eventually found some stuff right to get her food you can still find stuff on loopnet but Lee's strategy is exactly what I would tell anyone who's beginning to do go to loopnet find the deals you're not looking for deals you're looking for people in relationships you're looking for who's listing what you're listening you're looking for the people who are going to take your calls and if you're still nervous pick a market that you're not going to invest in in practice over there and then once you're comfortable go to your home Market that you're going to invest in and then start building those relationships so yeah loopnet is a great source for relationships you might get lucky and get a deal but don't approach it with hey I'm looking for a deal approach it with I am looking for people relationships and building my skills and then you will have Success With loopnet or correct the or any of those other platforms Lee what about you anything specific like is there a certain shine that you should look for in this scrap yard that would draw your attention or is it really just I'm trying to find a broker that will take my call and I'm calling about the one property nobody else is so I'm more likely to get them on the phone and then I'm trying to work that into a professional relationship yeah the only thing I'd say is Brokers will use loopnet more for smaller properties so they you know they may have a a pretty good 16 unit deal pretty good 20 unit deal 30 unit deal but um they might just they might use Loop net for they don't have a big list and I would say you know like in Cincinnati we've got you know three four five kind of the top Brokers and and they don't mess around with the smaller stuff too much but then we there's like another level of Brokers that are small guys kind of independent shops you know you would I could tell you the brokerage and you'd say I've never heard of that um and they just deal with smaller deals and a lot of times they just throw them up on uh loop net they don't have this giant list so you can get some I'd say there's at least in Cincinnati you can get some decent deals um but they're smaller so again if that's where you're starting uh I I do think it's a you could actually find some stuff and when I would say just what shine you're looking for David is just something that um you know is close to you and something you think you can operate pretty well uh for whatever reason so what about Jagged edges Lee is there anything that looks good on Loop net and then you go to grab it and get cut because I know that like people throw stuff in there a lot of the time that just doesn't really fit into any box you probably shouldn't be in there do you have any advice for how people can avoid falling in any pitfalls yeah I'll just say from a high level I've learned over the years um I've learned from guys like Andrew but I'll say there's I'll see properties where I want to own that property I mean the age of the building the location things like that that really matter where I'm like man I want to own that property but usually the numbers suck and and the price so I'm okay but I I don't like it for that price where I would say there's Jagged Edge and David on the other side of that coin where you say man I don't really like that property don't really like the location it's like an older property I bet it leaks I bet the roof isn't good I bet the residents are rough it's going to be hard to manage but man the numbers look good that that's where you got to be careful and it's hard not to do and I'll say that's kind of how I got started and sometimes you know I I think Andrew got started a little bit now like maybe he bought a property in Atlanta that was a little bit like that and so maybe that's that's kind of how you get started but that's where you got to be careful where the numbers look good and and you think and like I'm I'm getting this for such a good deal well it's not because no one else saw it right other people have seen that and they've passed on it for some reason it's because there's Jagged edges like you said David that's because probably not in a great area really rough tenant base um you know the building's not good you're gonna have cast iron Plumbing that you know just much higher cost than you think those are the jagged edges you gotta watch out for yeah he's called a spreadsheet goggles right and that's generally the case with c and even down to D properties they look great on a spreadsheet oh my gosh the cash flow is wonderful um but what I say about I mean I need to get a t-shirt made with this is is The Grass Is Always Greener Over the septic tank right and and that's that's I've had I you know that is you know know almost all of us myself included when we go into multi-family we go for those properties because they look great on a spreadsheet no one else wants them the broker will talk to us don't do it that don't do it that's advice it's funny how when I talk to Andrew and we're we're getting into apartments that we're looking at or that he's analyzing the questions that he asked or the goggles he has are radically different than mine like I've never asked the question what type of material is the plumbing made out of in residential real estate it does has never popped into my head I might not even know what it is and like that's one of the first things that will come up at a certain part in his uh in the analysis of it and you hear lee said the same thing this is it's a very different Beast than just buying a duplex even though we call both of them multi-family all right moving back into your story here Lee tell me a little bit about like how did your wife change your mind about the steps that you were gonna take yeah one thing that was really neat for us David um and you might find this in a partner hopefully you find this in your spouse but God just created Han and I very differently I'm a risk taker I you know and when I jump in I'm ready to go I'm I'm the build the parachute on the way down uh that type of person um and she's not so there was a lot of you know struggle early on because uh once I found real estate and especially once I got in and tasted it I mean I was all in I was ready to go um so even with that first flip yeah okay I agree with you it took way too much time but man like we made money this was fun like the next one's gonna be better I was ready to flip more properties um for her it was like no we got into this because you said this was gonna be better for our family we have two young kids at the time David and and they I mean I you know we're in agreement there like my wife and I are in agreement what kind of life we want I'll just kind of push past and say when we'll get there but we got to do this first and my wife was like you know a little bit more um she's just wiser than I am um and and more Brad going hey no you know our kids are young this is an important time we're not gonna just sacrifice this time this is important let's take a step back well taking that step back caused us to not do another flip so instead of doing another flip she said now again like you talked about um residual income from from people rent thing and and yeah we got this chunk of money but now we have nothing because we sold that property so I thought we were doing multi-family so yeah you're right let's get into a duplex so um and then kind of the same thing we sold it with the duplex and she's like okay but you know multi-family and hey maybe are you sure you want to do another duplex so she just really calls me to slow down and really think about it and be intentional about our next step so it was really cool um I don't know a whole lot of people that um did one one unit one two unit and then one 16 unit you know we we only took three steps we did three properties but the third one was a 16 unit um but I've got to credit my wife on that because again I would have just done a bunch of flips I would have been like you know Andrew I know others I I think um you know I can think of others that are they're scaled really high in the multi-family but they did like a couple dozen flips first I would have been that guy uh but but my wife you know kind of nope put the brakes on let's think about this let's be intentional you said multi-family you said rentals you know all that that's not what flipping is so that's you know how we kind of work together uh but then also she she would have never got started without me um so I I would kind of push and she would stop and say let's think about this then I would push and sit up and let's think about this um you know I'm always what's next I mean you know each time she'd say I just got comfortable with the duplex and now we got to do a 16 unit you know it's such a yeah it's Mount Everest like what are you doing we don't know anybody that does this um and so I know a couple people on Bigger Pockets or at least I've heard them uh talk about them in your pocket so uh we'll do it so um yeah that's kind of what what how it worked out between us David and now we you know kind of um compromised together along along the way all right so it seems partly by persuasion and partly by momentum you end up getting bigger what or who did you need to have the confidence to go after for this next deal this 16 unit or the one after that the one after the 16 unit yeah the one after that that just really built I you know some people will talk about the law of the first deal uh maybe specifically when you're getting a multi-family and and I really believe in that so I needed I needed that kind of first Mentor that I had Mark that was leading the apartment focus group at the the Cincinnati Ria I really needed him to get into the 16 unit but he kept telling me all along the way Lee wants you to do this one you know you won't need me on the next one and and I maybe I I could have but I found that to be true so on the next one it was an eight unit so it was actually kind of a step down um and the funny thing is you know speaking of that law of the first deal the day we were closing on the 16 unit I got the eight unit under contract so I mean talk about you know you get some momentum to close your first you know multi-family and right away you get another one that was only like a month and a month later that we got a 10 unit under contract so I mean I just did those you know more by myself I still had my mentor's ear um you know asking him some questions but I actually gave him a piece of that 16 unit because he helped me so much on it but then getting into the next eight unit and the 10 unit which were right after that I was able to jump in those kind of more on my own can we can we dive in for a quick second how were you and I know you've touched on a little bit but could you for those again looking to get okay get there first 8 10 or 16 units how were you funding these early deals were you using uh like you know you made some money in flips you had a partner was it uh you know solely from that or were you starting to bring in investors and kind of the beginnings of syndication at that point like how are you doing these first deals that that started to build your your platform yeah great question I I think these small multis are such a good way to get started and you can make it pretty simple I I just did a joint venture deal with a a family member or a close friend and we just went 50 50 on it which which deal was that that's all three of those so almost 16 units yeah 16 unit eight unit and the 10 unit uh you know different people but each one I either had one or two part partners and I would keep half of it and I would give them half they were kind of more the money Partners now be careful on a joint venture everybody has to be active and they were but I mean if you really look back at I was probably doing 90 95 of the work and that's why I got my 50 and they really got their 50 because they brought all the capital that we needed for the deal so it was passive for them yeah yeah pretty close to being passive for them yes okay but technically no uh because it was a joint venture so they had to be active right right for anyone for for legal purposes it was not passive correct yeah let's let's let that be on the record all right so let's recap where we're at here so you take a pay cut at your job you move from corporate physical therapy to at home physical therapy so there's a little bit of a disruption in kind of the the pattern maybe that your life had looked like but that got you some more time and flexibility which you threw into doing your first flip this is how you got your feet wet with real estate investing you learned how to run numbers you learn how to network so I was like that's a pretty important part of your whole story here and it seemed like that was a step back but it actually propelled you into the flip that got you started with real estate then a duplex and then bigger multi-family so you're picking up momentum here but as you do this you're also carrying more weight you're managing more properties you have more time going into this at a certain point you start to realize either this one isn't worth my time or I know more than I knew before I wouldn't have bought this one with what I know now even though it made sense at the time to get me to where I am now when did you decide to liquidate that yeah good question part of it was you know the market driven uh David so we we got all of those those three multis uh in the fall of 2019 um so coming into 2020 you know covid hits um and and you know crazy enough at the time and thought it might be bad for real estate and uh it was amazing for Real Estate because how the government the FED handled it but um so you know as 2020 went along those were all pretty big value-add properties those multi-family so um I I use third party management that's another thing you know we get into that a little bit but I'm I'm a big advocate of that especially when you're getting started um if you want to scale pretty quickly I guess if you just want to own a couple duplexes and and scale small in your own Hometown sure manage them yourself uh but using third party management really helped me to scale because they were managing the day-to-day and they were a great partner to me and you want to talk about just going back real quick how did I get over that Mount Everest of the 16 unit knowing that a property management company was managing it was a huge part of that we've actually recently discussed the property management issue in a previous episode but how did you find your third party management company because that that size property 8 10 16 units that is especially hard to find good property management for so how did you do it yeah again I'll just have to go back to referrals um and that's why you've got to network that's why you got to be part of a a community you know on Bigger Pockets it's a great place to get started but then I would use that to find your local community the Ria is really good when you go to Rio when you go to a Meetup you're going to talk to people that own small multi-families you're going to talk to people that own single family rentals duplexes stuff like that so you're absolutely right Andrew I would never want to you know have to manage a bunch of those myself so you got to talk to people the one thing I would say is talk to people that have used that property management company for over a year because I found people and I've have it myself where they do well at first and then not so much um so if somebody's been working with a property management company for over a year and they've had a good experience and you trust them then I would go ahead and go with that property management company I really like your tip about get referrals from somebody who's used the company for at least a year because those relationships are like dating right everyone's excited and on their best behavior the first six months or whatever but by the time you get past a year some of the real colors have started to come out and that's when you you really know who you're working with um so that that's a great typically only get referrals from someone who's used the company for a year or more I like that so at what point did you decide it was the right time to sell these properties as 2020 went along and we started bringing them around I mean it was twofold for me David I saw an opportunity because of the market but two I was just so ready to go all in on real estate and you start thinking about what's the opportunity cost of me not being able to work on this full-time because while I didn't have a busy job I did still have a full-time job um and so I was just feeling such a pool to real estate so I wanted to get in and I'll just share some quick numbers um just so people know you know with those 34 units we were owning half of them you know we're in a good cash flow Market I was probably making like thirty thousand dollars a year off of those now I was never quite making that because we started selling them before they were all stabilized but I just haven't done the numbers myself if we'd had Angelo's stabilized we're probably making 30 a year if we could have doubled that that probably would have been enough for me to say okay this is probably the bare minimum of what we need to pay our expenses uh this was back before all the inflation that we've had some idiots maybe it's definitely more than that now but at the time I was like okay I gotta double this well you know David I just didn't want to wait that long I didn't want to take any another year to final these and properties were already hard to find so because the market went up so much um I saw an opportunity to sell um now there's taxes involved and all those things but I said thirty thousand a year I really had about the opportunity to make 10 times that if I sold all three of these that's just how ridiculous the market got so I said man I could pull forward 10 years of cash flow on these and what that allowed me to do David was give me this Runway so that was like if I need 60 Grand a year that's going to give me five years worth um okay and let's say taxes take that away okay four years worth so it's like I've got four years of a Runway to jump all into this go all in if I can't do anything with it I mean sometimes I think people overdo the worst case scenario my worst case scenario was I come back to being a physical therapist where I was before and and I can still do real estate I just can't do it full time so the market you know was a big part of that decision I just wanted to get in so bad and I just had an opportunity with these properties to say why don't I just take all this cash flow now yep I'll have to pay taxes but I give myself this big cushion this Runway to jump all in and see what I can do worst case scenario I got to go back to my job that I'm doing right now so for newer investors that are looking at multi-family what are some things that they should consider especially considering the fact that we don't know for sure but statistically speaking the next three years would probably be a lot different than what the last three years were like yeah what I would say to that David is just considered it just takes time I mean I think real estate takes longer than people think especially coming off the past three years because I would definitely agree with you that these next three years are not going to look like the last three years so I would just say man get ready I think there's going to be some really good deals over the next three years so I think you're gonna have a chance to pick up properties but if you think you're going to buy something in the next six months and it's going to double you know or or whatever in the next couple years it's I don't think it is but that's okay you know just give it some time it's eventually going to double yeah I would just focus on that focus on getting good deals focus on building your business you know building up your portfolio but just know you got to know it's going to take time it takes time to build wealth and real estate Andrew what are your thoughts on the next three years versus the last three years yeah I think I think Lee's right on um you know a lot of the deals and opportunities we saw in the last five or six years were all two and three year holds uh that business model is gone like I I would be scared of anything that requires a two an exit in two or three years however if you look longer term five six ten years out all the fundamentals that favor multi-family investing are very very much in place especially if you're buying in the right markets and so later this year and I think all of 2024 and probably into 2025 are going to offer everybody opportunities that haven't been available for the last five or six years it's been so competitive and so high priced so you know for for those those have been trying to get into the market and I haven't been able to guess what the Brokers are going to start returning your calls now right because a lot of the buyers have gone away and this is the the opportunity to get in at the bottom of a new cycle and I'm not saying I'm not saying that the the bottom is a specific time or day or month or price just big picture the bottom is going to be sometime in the next 12 18 24 months and then any well-located properties that you buy and finance properly during that time frame five six ten years down the road you are gonna look like a genius so um yeah I think Lisa right is me a lot of opportunity you still need to be very cautious and strategic about it the the business models and plans and strategies that worked for the last five years those need to be put on the Shelf they'll come back um but those aren't the strategies for right now but that doesn't mean you just sit and wait right there's no such thing as bad as a bad Market just bad strategy so we just need to adapt our strategies for the current market what's your thoughts both of you on balloon payments coming due in the next 18 to 24 months with rates significantly higher than when people got in do you think that rents have gone up enough that they can still cover The Debt Service on the refinance but maybe the cash flow goes down for the one holding it or do you think that we're actually going to see some fire sales Andrew you probably have more insight than I do to that I'll just around here what we're seeing and hearing um I think probably if you bought in 2021 I I'd be surprised if you didn't get enough rent growth to be okay as long as you didn't take too much leverage I mean I've heard of people taking you know they got 90 percent learn about you then got 100 of their rehab uh in their loans so that that's a lot to to overcome because when you refinance they might only give you 75. so even if you got a bunch of rent growth you might be in trouble but um Mike my guess from what I've heard some some people that bought maybe end of 2021 and 2022 uh depending on how short that balloon payment is might be in some more trouble yeah what the the situations Lee mentioned is going to be in my opinion is going to be the driver between increased transaction volume by the end of this year as well as increased opportunity there are a lot of fantastic properties that are operating really well but no nobody nobody saw it I don't laugh I shouldn't say I don't know of anybody whether it's big Banks um any kind of podcaster nobody forecasted two years ago that rates would be you know the federal funds rate would be bumping up against five percent right the forward curve said oh hey we might be up a half a point by the time we get to 2022. and that's what everybody planned on so this came as a shock to the entire system and like Lee mentioned there's a whole lot of deals that were done in 2020 21 and even into 22 that were very high Leverage and yeah there's still been some rent growth but not enough rent growth to overcome a hundred or 150 basis point cap rate expansion which means you know when you cap rate noi that gives you your valuation so there are a ton of great properties out there that have a balloon payment due meaning the loan matures and it is due in full in the next you know 6 12 18 months they cannot refinance right we talk about uh you know David you're always talking about hey you know if you do a burr and you leave 10 in that's still a win right cash out we're talking big cash in refinances are going to happen we're a sponsor or their investors are going to have to come up with five million dollars just to refinance the loan and put that money back in a lot of people can't or won't do that those properties are either going to be sold or they're going to go back to the bank as foreclosure and I personally um know of quite a few properties that are in that situation they are kicking the can down the road for now but they are probably going to get sold um 1 quick caveats to that is lenders I've kind of learned their lesson from 2008 they don't want to take back a ton of stuff so they the ones that can be flexible are being flexible and there's a ton of money on the sidelines just waiting to dive in at the moment that these distressed deals start showing up so I think that's going to help kind of put a floor in things but the opportunities are going to be there um and candidly you know we're looking forward to the chance to to get in at the beginning of a new cycle and and you know again especially for anyone looking to get started now is your time the competition is down people are going to pay attention to you and there's going to be deals coming that's awesome okay so let's work with that Lee do you feel like there's a sweet spot in terms of size or units that newer multi-family investors should look into yeah I think you know if you're just getting started yeah any multi-family I think is is a great place to get started um once you start building your portfolio you get comfortable with maybe a duplex and a quad um I I would just kind of stair step up I would jump into it and um you know a 12 unit something like that um it's just you know you need to raise less money for it um you mess up it's a smaller mess up but once you get going and um you know like like I did got that portfolio I have found you know just over the past couple years doing this we've syndicated some deals we've done some bigger stuff um I I think there's a a nice um pocket between 20 and 100 units um that's a nice niche because um you don't have to get bone lead by guys like Andrew Cushman uh but also you know staying above 20 units you know I'd say 90 of Real Estate Investors you know anything above 20 units is like Mount Everest like it was to me um and so you're you're you have a lot less people competing but also you're staying away from the really big money competition uh who would never look at anything under 100 units sometimes not even under 150 units so um I try to get as close to 100 units as I can um because there's some economies of scale there and I and it's just much much easier to manage Andrew mentioned and I agree that like the smaller multis are harder to manage so it's very helpful if you can get a few in the same area which makes it easier but I just think your competition you are limiting your competition uh between 20 and 100 units I think that's a nice place to be nice yeah so you're you're too small for the big guys but too big for your competition I always look for that same thing that's a wise take on that I've often looked at like with residential real estate there's often a way that you can find the median income for an area find out what most people are going to be pre-approved for based on that medium income go a little bit more expensive to where most buyers are not going to be able to qualify or uncomfortable qualifying and then look for that area where the deal's been sitting on the market the longest and then you go write an offer that is less than what they're asking for which would actually put it in the price range of where people could have afforded it so now if you need to exit you're selling and you can still make money but that way of looking at real estate makes a lot more sense than just plugging in a spreadsheet and see see what the spreadsheet says what about the concept about good deals and money following a good deal okay is that a fallacy or have you found that to be the case no I I would say that's a fallacy um I I think you know where people with money be interested in a good deal sure um but where I think that that becomes a fallacy is when you think hey I'll worry about raising money once I get a good deal and and then people are just going to flock to me I think that's absolutely a fallacy because people don't just invest in a good deal with somebody they don't know I mean yeah they would do it if it was their own deal because they would trust themselves but that's a good point you want to buy some really good cocaine I promise that it's never been stepped on yeah yeah yeah similar um so yeah they're not going to trust you with that really good deal uh if they don't already trust you so you have to develop the relationship first you have to to explain to them your track record get them comfortable I always say we want people to be comfortable and confident investing in multi-family real estate and then we want people to be comfortable and confident investing with threefold and then we'll show them the deal and if it's a good deal yeah the money will vulnerable only because we already got them comfortable and confident and multi-family and with us specifically but you cannot find the deal and then go find people and think they're going to invest with you and I think what that gets to the heart of that is when you're investing as a as an LP you are really betting on that sponsor and the operator more than the deal a really good sponsor can take a bad deal and turn it around or save it but uh not so good operator or sponsor can take the best real estate deal and run it into the ground so yeah Lee you're absolutely right so when it comes to this do you need a mentor and money to get access to money like what else do you think that you need if you're trying to raise money to become a syndicator yeah I think the key there David if if you're not gonna get a mentor if you you know I think you can start out small so for me you know my wife and I we did the flip on our own then we did the duplex on our own so by the time we got to the 16 unit we did have a little bit of a track record so even if we didn't have the mentor I think maybe we could have broken that and let's say we went to an eight unit first there might have been somebody that was willing to trust us now it's the people that are closest to you the people they're gonna believe in you even if you don't have a real long uh track record and they might see your track record in other places in life like if you have a great corporate career a lot of times I'll see people within uh somebody's colleagues that they've worked with they say well I don't know that you're going to be good at real estate but I know how you work and I know how dedicated you are and I know your integrity so I'll invest with you so the people that are closest to you are going to be the ones that invest with you first so if you scale slowly uh you can and maybe start out by yourself I think you can get people to bet on you without having a mentor uh that you can lean on you know and lean on their track record but if you want to jump more quickly certainly if you know some people out there saying well I don't want to mess around with small stuff I want to jump right into a 40 unit yeah I I think you're gonna to be surprised to find enough people to invest with you to buy that 40 unit unless you got all the money yourself but because there's just not going to be enough people that believe in your track record to jump right into a 40 unit so I think if you want to go quickly you're going to have more need for a mentor uh somebody to lean on and somebody to help bring in the capital and the experience that you need uh if you want to go real slow and build up your track record slowly and build up your experience slowly build up your Capital base um slowly I think you can do that more on your own again for you know Lee You Dropped a nugget of wisdom there in that track record doesn't have to mean look at all the big deals I did track record can be your worst at your work ethic at your job um your your the amount of consistent maybe uh volunteering you've done at you know at church or or local charities something that lets people know who you are at your court that counts for track record even if it's not real estate yes real estate is a Great Piece to add on to that but if you're sitting here going I don't have any kind of real estate track record well you can partner with someone to get the real estate piece and then and then add that on to the track record of who you are and now you've got the whole the whole the whole package very nicely done all right last question Lee what is the biggest lesson in multi-family that you've learned yeah I'll say the thing I've stubbed my toe on the most uh that I'd like to pass on to other people trying to get into it is just the need to bring in more reserves than you think you need yeah it's a lot different that's where I think the numbers are better you know you're just always going to be surprised I've been surprised so many times on the Deferred maintenance that we find um you know going all the way back to that 16 unit David I just I was so shocked at the way people would would you know live um that they would settle for so you know you think if when we went into that deal we knew okay there's three units vacant we think some other people are going to move out so I really had a good number in mine and I got pretty close to it on the amount of money we're going to spend to renovate units and the and the people that we're going to leave we even anticipated that pretty closely what I did not anticipate is the people that stayed we had to put thousands of dollars into their units because I was not comfortable with them living the way they had been living for years you know we went into some ladies uh um apartment just to change out our toilet because we wouldn't have more efficient toilets and she said oh while you're in there the water my water doesn't work in my bathroom her bathroom sink hadn't worked and I said okay how long's that been a problem oh about four years I said you've been living without a sink in your bathroom for four years oh yeah well it was stuff like that and like somebody's water heater out I mean that's where we're spending I'm like we're we're not okay with that we're you know we're yes we're gonna get that fixed but I didn't know we're gonna spend so much money on the people that stayed we got hit with a pretty big tax issue this past year on some of the properties we syndicated just kind of came out of nowhere it was a unique thing there was a new law passed in Ohio that played into it you just never know um and it really messes things up when when you suddenly don't have enough reserves you suddenly don't have the capex budget you thought you had so you can't turn units as fast as you wanted to it just it messes everything up um so one big lesson just whatever you get a good idea of what you think you're going to use on capex and then how much you need in reserves and then you know probably add 20 to that and you're probably closer to the amount you need awesome man we may need to have you back to get into syndication 101 but thank you very much for the job you did today I think you painted a very good picture of how to get off the Runway and get your plane up into the air when it comes to multi-family investing as well as how to find spare parts for that plane in a scrap yard somewhere on Loop yeah it was an absolute honor to be on guys I've been listening for years and it's just an absolute honor Beyond I'd love to come back Andrew any last words no I just say you know for those lists again you know sometimes you know people come on it's like I've done 5 000 units and you know and I live in Atlanta or I'm investing in Dallas and you know it seems kind of far away you know Lee has done to me like you know Lee Lee really laid out the framework for getting started right he didn't just say I'm gonna quit my job I've got no I've got three weeks of reserves and I'm gonna go into multi-family he transitioned into a flip and then transitioned into multi-family gave himself cushion all on the way um did it right in his own Market um you know made had his had his wife on board had a mentor and and none of the stuff Lee talked about was this crazy miraculous event where he just got lucky um he Lee is just a person High character who put the time and effort into relationships and trying to do things the right way in you know not overnight over time that has built him into a successful real estate entrepreneur nice man from physical therapists to Fantastic multi-family investor this is Lee Yoder thank you very much Lee for people that want to find out more about you where can they go yeah jump on our website threefold REI as in real estate investing.com that's threefold spelled out rei.com and then I'm pretty active on uh LinkedIn uh and Facebook so you can find me by my name and I'm on Bigger Pockets as well and Andrew for people that wanted to follow up with you where's the best place for them to find out more about you yeah if you just Google Andrew Cushman uh usually the the first uh page or so of results but just go to vantagepoint Acquisitions our website vpacq.com uh connect uh connect there's a couple of tabs there you can connect with us and I will see you at bpcon in October awesome man and you can find me at davidgreen24.com please go there because you can follow me on social media at davidgreen24 but you will get fake accounts that will follow you back as soon as you do people get tricked by this all the time make sure the spelling of the name is correct if you're going to follow me on social media which I hope you do and you can go to my website which is not being faked davidgreen24.com and well thanks a lot Lee we will have you back again I'm gonna let you guys get out of here this is David Green for Andrew Jedi Cushman signing off [Music] thank you [Music]

Channel: BiggerPockets

Views: 188,940

Keywords: how to invest in multifamily real estate, how to invest in multifamily, invest in multifamily, multifamily investing, passive income, multifamily, multifamily real estate, rental property, investing in real estate, how to invest in real estate, income property, how to buy an apartment complex, how to buy a duplex, small multifamily, large multifamily, buying apartments, multifamily deals, rental, multi family financing, grant cardone, biggerpockets, biggerpockets podcast, podcast

Id: 70HkuvEeGks

Length: 59min 6sec (3546 seconds)

Published: Thu Apr 13 2023