On the show today we talk… Multi-Family Investing Simplified with Dion McNeeley!
Show notes for Multi-Family Investing Simplified with Dion McNeeley!
The Vantastic Life is…
– is in Telluride CO!
Dion is a local guy from Tacoma WA who has house hacked his way to financial freedom with 11 doors. His story will resinate with many of you getting started.
Welcome to the show Dion!
Thanks for having me and doing the podcast so I can spend an hour learning from you each week.
I’ve just loved the simplicity, and clean way that Dion answers questions.
Can you tell us about your life story?
We grew up very poor. Then I joined the marines to get out of being poor. After desert storm I became a Tumwater police officer. So I got tired of looking for new jobs and careers. My brother got into rental properties and doesn’t have to work anymore.
I tried investing and it didn’t go well.
Then I found BiggerPockets and learned a ton and in 8 years got rid of all my debt and created financial freedom.
Wow, I just got goosebumps! Thank you for all that you’ve done.
So, your brother had done real estate before you.
I kept thinking of the movie with Steve Martin called The Jerk.
How did your brother get started?
My brother is very entrepreneurial and is very handy. He had a tree service before getting into real estate and now travels around. But his model wouldn’t work for me because I had a job. And I was a single parent.
I tested out the waters by moving out of my house and into an apartment. And I made all the mistakes by renting to a friend.
When I found BiggerPockets I thought I’d live in a house for year and then move onto another.
So you rented out your own home that you owned. Do you still own that?
I do, and I have a section 8 in there right now.
When I started I rented to a friend that stopped paying rent. Then I went to have a face to face and the renter had moved another person into the house and collecting rent. I wanted to give up at this point.
How did you get out of this?
I found a single parent that I could give the house to. But she had bad credit. She found a lender that said she could have the house if she could pay for 1 year. She got to 10 months and lost her job.
At that point I’d been listening to BiggerPockets and learned about section 8. I called section 8 and couldn’t believe how well this would work. And now there’s a disabled mother that lives in the house in a great community.
Thanks for being a good guy.
The last thing that most investors talk about is debt, but it’s the first thing you should learn about.
How did you purchase the 2nd property?
The game changer for me was an interview on BP that pointed out the difference between 1-4 unit residential and 5+ commercial, and the loans.
I started with a 5% down loan when I was working as a truck driver. I scraped the money together and I found a duplex that after PITI my cost was $300/month. That increased my savings vastly!
So you fell into your first. Then the seconds you planned to do. What were your goals?
The original goal was to get to financial independence. The freedom number. That was the first goal.
A lot of people think the first needs to be a home run.
For me the biggest change… almost any financial freedom says to get rid of coffee or eating out, but the biggest cost for people in the US is they’re housing.
People need to understand that you just need to get started and not try to cover everything in your life with one great deal, right?
Right! Not one of my properties meets the 1% rule. My first thought was that if I can put money into a property and get money back, that’s a positive thing.
My brother said that it took 11 years before he got his money back. Then I realized that he already had his money, but it was in the properties instead of the bank.
Let’s talk about how you underwrite. We were just talking about that in our meetup. And saying that you need to force the rental price up.
The 1% rule is… the monthly rent is equals to 1% of your all into the property for.
I was finding $350k that would rent for $1500, or a duplex that was similar priced but way more rent.
The total cost to purchase. The annual profit
I prefer to have side by side units, and 2 bedrooms, with washer and driers. With this strategy I’ve only had 1 turn over.
I like the units to be 10 miles away from each other. I like a base of a hospital or other major place of work.
I put down 20-25%, and I have a job.
50% of rental profits are saved.
Right now it’s about a year between purchases. It’s an income snowball.
If you didn’t have your W2 would you be able to get the loans?
Nope. People want to quit their job to invest in real estate but that’s backwards. You need your W2 to qualify for new loans.
My original strategy was 4 mortgages, but it’s changing because of the low interest rates. I would get to 4 and then pay one off and get another.
Then this year the mortgage rates when way down. I was from 5%’s to 3%’s.
My goal is to never pull cash out of a property.
Property taxes in Pierce and Thurston when up, but with the refi’s I didn’t have to pay more overall. So I didn’t need to increase the rents.
But with the interest rates I’m going to get a 5th or 6th mortgage.
How many years?
My first duplex was in 2012, so 8 years.
What’s your biggest lesson?
The thing I would tell myself when I was starting out.
You are going to be alive in 5 years, start investing like it!
I made it to 40 years old without having $1000 in the bank. I’ve learned to run it like a business.
I listen to BiggerPockets and Meet Kevin.
OMG you listen to Meet Kevin?! I love Meet Kevin!
Cash flow doesn’t make you rich. It protects your asset.
I’m wealthy because I can afford to live even if I don’t work.
My portfolio is over $2m.
Cash flow is what we focus on but my kids will inherit millions.
My system works for me because I’m lazy. But I have to live somewhere. If I pay some guys $200-300 every 2-3 years my wealth increases.
Why are you moving every 2-3 years?
It’s not really required if you can save the down payments. It’s 20% down because you’re only going to use the FHA once. I have a VA loan in my pocket.
I move because it gives you a lower interest rate.
Some people it’s unrealistic for them to move that much. I get it to get that low financing.
How hacks are not realistic for a lot of people.
When I was in the police academy I house hacked by renting out a room. It’s just reducing your housing costs.
How to do you find deals?
All have been on the MLS.
I have a deal with the agent that if they find deals that make sense I do the deal with that agent.
I’m very transparent with lenders, contractors, etc.
Are you finding that there’s competition?
There is. On my last purchase I did $50k earnest money.
I make my offers before I see the properties, but have contingencies that can get me out of them.
Most duplex that are for sale have 10+ offers. I do escalation clauses but I don’t like to do them.
So what we’re saying is that you might be worried about competition but you are able to inspect these. With a single family you might need to pre-inspect.
With the multi family you can’t do that because there might be people living in the units.
How did you manage credit scores?
Yeah, it’s really important! I’m in a lot of forums.
When I’m looking at a tenant I’m looking at a 700 or higher credit score and they can’t have been evicted. Even with my section 8. Which is fixed income, not necessary low income.
Myself, I fought to have a high credit score. When I went through my divorce I found out hundreds of thousands of dollars in my name that I didn’t know about. Then my wife filed for bankruptcy. Then I called all of the lenders that would negotiate the debt down to $89k.
I wanted the 740 or higher credit score because that’s where you get the best interest rates.
Drop our first Joseph Kidworth podcast in the show notes.
I also have a wonderful bankruptcy foreclosure attorney, Richard Symmes.
So, how do you… as long as you can come up with the 20-25% down payment the property can carry itself?
Once rental income is consistent for 2 years it can come into your income. Then above 2 years you can project that ahead.
I have a powerful tool that I have for getting longer leases and asking for increases. It’s called The Binder! It’s a picture with the purchase price, then a map of all the rentals I the area that are comps. Most properties that are for sale are because the owners are tired (multi).
I show the tenant that they are paying $900/month, and show them what the others are going for. And I ask them what they want to pay. Most will go in between what the area average and what they are paying. Then I go for a 2 year lease to try to protect them.
That’s the reverse psychology of most people. They want to max out the rents.
That is very interesting. That’s a very unique play on that.
What’s your goal with that?
The long term goal is because I’m going be alive in 5 years. I’m going to get at least my 10% cash on cash return. In 5 years there’s principle pay down and rents will go up. So in 5 years this is going to be a 20% cash on cash return, and I’ve paid no taxes because of the depreciation.
This is SO good!!! We are going to run long and have to have you back on.
I’d love to!
I hope that hearing Dion’s story has helped you.
I’m going to twist your arm to join us on our Thursday Meetup at 11:30am. Anyone can join us at https://meetup.com/SeattleInvestorsClub. This happens every week. You can bring any questions and can be in any area of real estate.
What has this allowed you to do?
The funny thing is that it started out as a selfish idea. What do I need to do to not need to work for money.
The truck driving school I was working at, where I really wanted to be an instructor. Working there was the coolest job I’ve ever had. The school sold and I had an idea with the new owners. I told them my idea would help the school grow. They said that they’d give me 6 months.
Truck driving school industry sucks. You’re gone all the time and you don’t get paid well. I never spent a night away from home. There are all these different jobs that are related to truck driving that people don’t apply for.
So, for free we will pair people up with jobs and transportation without driving a truck. There’s a driver shortage right now, and people are getting put into that position.
This helped our school create relationships with local companies that pay $70-80k a year to start and the drivers are in their own bed each night.
This worked so good that our campus grew to 4, and they made me president and gave me part ownership.
This is my favorite podcast that we’ve done in a long while! Thanks for being a good guy and being you!
How can people get in touch with you?
Phone number: say looking for a non-driving job 253-983-0200 or https://CDSTruckSchool.com. If we find you a job you’re doing us a favor by keeping the relationship good.
This is making me teary here. You are helping so many people!
Well, it’s the podcasts like this that allow me to share things with people are ready.
As you can see, Dion is someone that you should get to know.
Man, we appreciate you coming on today!
We are going be supporting Dion.
And we’d love it if you’d join us on Meetup!
That’s if for today and I’m inspired!