Become a (Small) Multifamily Millionaire in 7 Steps w/ Brian Murray and Brandon Turner

Brandon:
This is the BiggerPockets podcast, show 496.

Brian:
Volume one is achieve financial independence by investing in small multifamily real estate. That’s the American Dream, right? So you can start with very little and you can achieve financial independence. And in volume two, it’s create generational wealth. So once you’re financially independent, you start thinking about the future of your family, your kids, what are those future generations and what can you leave for them? So it’s just an amazing opportunity. You just don’t see that. But if people question whether the American Dream is still alive, I point them to multifamily real estate.

Speaker 3:
You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing, without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

Brandon:
What’s going on everyone? It’s Brandon Turner, host in the BiggerPockets podcast, here with my co host, Mr. David single family Green, what’s up, man? Do you have any multifamily end?

David:
That’s funny that you labeled me that way. Well, I mean-

Brandon:
It’s not a derogatory term, this is a good thing.

David:
I have multi business. [crosstalk 00:01:14]. I have one fourplex, I would say.

Brandon:
Wow! Okay. [crosstalk 00:01:18]. Well, I’m a liar then. Well, also joining us today for the introduction here, which we don’t usually do, but we actually have our guest today, Mr. Brian Murray. Brian multifamily Murray, what’s going on, man?

Brian:
Hey, how are you guys doing? Really excited to be here today?

Brandon:
Sweet man, this is going to be fun. So, for those who don’t know, Brian is my business partner, co founder of Open Door Capital, author of Apartments and Commercial Real Estate, which is one of the best selling real estate books ever. And a genuinely awesome dude who understands multifamily better than anybody I’ve ever met in my entire life. And so, I’m excited to have this kind of conversation today about multifamily. I want this to be the best multifamily resource podcast ever made. So, are you guys up for the challenge?

Brian:
Yeah, let’s go.

Brandon:
Well, before we get to that, let’s get to today’s quick tip. Today’s quick tip is nice and simple. And this is going to be me totally plugging my own thing. We are launching today, The Multifamily Millionaire Book, which is the book volume one and two, which Brian and I wrote together. So, it’s a quick tip. Go pick it up. Just go to Biggerockets.com/multifamilybook, and you can get it there. And if you get it from BiggerPockets today, there’s a bunch of cool bonuses and we’ll talk about that later in the show. I don’t want to spend the whole intro talking about all the bonus stuff, but just trust me, these books are going to change your life. So, go get it, biggerpockets.com/multifamilybook. Okay, hey, also guys, remember, if you didn’t realize that this is part one of a two part episode on multifamily real estate.
So the episode you’re about to listen to right now, this is all on small multifamily. And we have a little injection, we’ll talk about who me and Brian are and how we got into multifamily. But this is really about the smaller side of multifamily. Then the next episode we’re going to release on Sunday of this week. So just come up here in a few days, is going to be more geared towards the larger deals, the syndication, the bigger stuff, which both are good for everyone to listen to. I don’t want you to be like, “Oh, well, I only do small deals, I’m not going to listen to the second.” Or, “I only do big deals.” I think both have a lot of fundamental stuff. So just keep in mind, this is episode one of a two part series. Now, with that said, I think we’re probably ready to get into this, David.

David:
Let’s hear from Brian first. Brian, what do you think is the most important thing for today’s listeners to take out of this show?

Brian:
I think that there’s not been a lot of resources like this available, potentially ever. And I think if they can see the value that we’re putting out there in these volumes of the book, I want to give them a little bit of takeaways that they can use right away. But also just share with them, put a great opportunity that Brandon and I put together to help him out. So…

David:
So first off, let’s talk about why people should listen to you guys at all when it comes to this space. So walk me through, or us through your brief stories around multifamily. How you got into it, what your portfolios look like now? And Brian, we’ll start with you.

Brian:
I actually started off with an office property as my first investment property. And my second property was a retail property and it wasn’t till my third property that I got my first multifamily. So, I had exposure right out of the gate to all different types of asset classes. And multifamily was by far my favorite. And so I pivoted once I got that first multifamily and I saw what kind of opportunities it presented and the advantages of that as an asset class, I pivoted away from office retail and other properties and I’ve been growing in the multifamily space ever since. So, yeah. That’s how I got there. And I just love to share what I’ve learned along the way. It’s been a passion of mine because I know if I can do it, so can everybody else.

David:
Brian’s been humble here. This guy owns tons of multifamily and has crushed it for the past what, decade? You’re a teacher, right? And you went from that into multifamily?

Brian:
I was. I jumped into real estate because I wanted that extra income and real estate seemed like the path that could get me there and generate some wealth and the financial freedom that I sought. And I loved investing so much. And I think it ended up being 10 years before I took any money out of my investment properties, which is, it’s ironic since that’s what got me in, but I just kept wanting to invest more and put my money back in and keep improving the properties and growing that portfolio. And now I’ve reached a point in my life where I can reap the benefits of that.

David:
So let’s get into why you switch before we go to Brandon’s story from commercial into multifamily. Let me ask you, how did you get started with the commercial properties?

Brian:
I really had no idea what I was doing. To be honest, when I first started, I looked at all different types of properties, I started off looking at duplexes and triplexes single family homes. And I really wasn’t finding anything that would get me the returns that I was looking for. So, I started to expand my scope of what I was looking at. And I also began to learn about creative financing structures and how I could take my savings and make it go further. And I just came across some commercial properties and started to evaluate those, learned a little bit about things like owner financing and assuming mortgages and things like that. And eventually, I came across this office property. And they were open to me assuming the mortgage, and I figured out how to get into a large property without putting a lot of cash down. And that kind of catapulted me into a pretty big property right out of the gate.

David:
So you really pulled yourself up by the bootstraps, I thought you were going to say something along the lines of a family owned business that I had to buy, or I had a mentor that was involved in it, but it sounds like you just set out on your own, and that was the space you started in.

Brian:
Yeah. I learned some hard lessons along the way. I didn’t have a mentor and I read everything I could get my hands on. But I still made a lot of mistakes. But one thing I love about investment property and multifamily especially, it’s very forgiving. You can make mistakes. And if you work hard enough, you can easily compensate for those mistakes and be successful.

Brandon:
So if I could jump in real quick, what’s cool about Brian’s story and mine’s related, but neither of us started as wealthy people. He was a teacher, I was working in a bank, making $13 an hour. And even before that, working at Cold Stone singing for tips, right? When I got my very, very first deal ever. But what’s cool though, it shows you the power of why multifamily can change your life. We could called these books, the book on multifamily real estate investing to kind of fit with the theme, but we called it the Multifamily Millionaire specifically to draw at that point that multifamily can make you a millionaire and in a shorter amount of time than you think possible. Nobody would have looked at me or Brian years earlier and be like, “Yeah, they’re going to be millionaires.” But just buying some multifamily properties, and we really go in depth in this in the books, is this idea of, you can really scale up pretty rapidly as you build that knowledge.
And as you build that network and the credibility and the trust, and you recycle that money back in again, it’s pretty awesome. And I get it. I see that in your story, Brian, very much how you started with nothing and became a multimillionaire through real estate. So, good job, man.

Brian:
Yeah, thanks. And to you as well. And I point people to the subtitles of the books, which there’s a lot of meaning behind those. In volume one, it’s achieved financial independence by investing in small multifamily real estate. That’s the American Dream, right? So you can start with very little and you can achieve financial independence. And in volume two, it’s create generational wealth. So once you’re financially independent, you start thinking about the future of your family, your kids, what are those future generations and what can you leave for them? So, it’s just an amazing opportunity. You just don’t see that, but if people question whether the American Dream is still alive, I point them to multifamily real estate.

David:
Yeah. Not only did you two start without being wealthy, you started sort of from the bottom, but you also started in different asset classes and where you ended up. And that’s a good thing to highlight, is that you don’t have to have it all figured out to take the first step. Most people I’ve ever talked to pivoted once or several times in their career and found their way into the asset class that works best for them. And I noticed that that showed up in both of your stories. So, Brandon, you sort of went from the single family road into the smaller multifamily. Tell me a little bit about the difference between large multifamily and small multifamily.

Brandon:
Yeah, good question. So, I started… Yeah, I started… My very first one was single family house, but even that, I rented out all the bedrooms to buddies of mine. So in a way it was kind of a hacked multifamily. And then I bought a duplex and people have heard my story before. I bought that duplex, I lived in half of it, rented half out. House hacking, which I’m a huge fan of and we talk about in the volume one. I went from that into buying a little bit of flipping, but eventually about a fourplex, a five unit, then because I’m duplexes, triplexes and then eventually bought a 24 unit. And I would call all of that the small multifamily. So, if you asked what’s the difference? What’s the difference between the small and the large? I mean, it’s kind of like this fundamental idea of, what… How do I say this? What’s the difference between small and large? Let’s phrase it that way. It’s not a unit number necessarily.
And in fact, when we wrote the two books, the two volumes, we struggled with that. Do you remember, Brian, we were on Haleakala, the big mountain here in Maui, we’re driving up there to go do a bike ride together. And we’re chatting about, “What if we wrote a book together?” And we’re sitting there going, “Well, this is what I’d write about.” And Brian’s like, “Well, this is what I think we should write about.” And we realized there’s two entirely different yet the same games here. Small multifamily is… It’s duplex, triplex, fourplex, of course. But the way you buy a five unit or a six unit or a seven unit, is not that different from buying a one or two or three unit. Right?
It’s all the same approach, basically. And we can dive into that David if you want to, but it’s like smaller… Even a 10 unit, or a 20 unit, when I bought a 24 unit, I would still call that small multifamily real estate because of the approach. The approach was very much hands on, I did everything myself, I would hire a local property manager or an onsite manager to take care of it. It’s very much like… It’s very me focused, I’m just doing this thing. And so where’s the line, the number line? I don’t know, I’m actually curious, Brian, what your thoughts are on that, but it’s very different than a 200 unit property. Right? That’s large.

Brian:
Absolutely. And I think people gravitate to this idea that if you have this unit number, you want to clearly say what’s small and what’s large. And Brian and I went back and forth on that for so long and we realized that when you get into that 12 to 30 unit range, you could actually take multiple approaches, right? You can approach it very similar to the way you would a duplex or you could kind of approach it the way you would approach 100 unit. And as you get further up in unit count, it becomes very clear that, hey, no, the lending process is different, right? The way you’re going to potentially raise capital and the way you underwrite it, the things you’re looking for. So, we recognize that there’s a whole approach for both small and large. And in the end, we wouldn’t do our reader service if we tried to jam those into one volume, because there’s too much there.
And there’s been plenty of great books out there on multifamily. But none of them are comprehensive, and they don’t go into the level of depth. And we want to share everything that we’ve learned, the mistakes and the things that work and don’t and have a resource that you just can’t find out there right now. But Brandon and I are both teachers at heart. And when we figure this stuff out, we want to share it. So, that’s what we wanted to do.

Brandon:
Yeah. One rule and 100% agree to all that. But one rule of thumb that I use, that I put this actually in the book, where I give this side by side comparison of small versus large. But my favorite one on there is the owner knows the tenants names. If you know your tenants names, it’s probably small multifamily, even if you’re… When I had a 24 unit, I knew all my tenants names, not by heart, but if I saw their name, “Oh yeah, that guy’s in that one, or that lady’s in that one.” But with our large multifamily, like the 530 that we’re buying right now, Brian, or the 100 unit or the 50 unit, I don’t know the tenant, because it’s a different… That’s a business that we run versus a personal investment that I run. And that’s the difference that we’re trying to get at here, small versus large. And there’s not saying one’s better than the other, some people will stay small forever. And there’s nothing wrong with that. It’s great. It’s a great business to be in.
And that’s why volume one is all about that. But some of us like Brian, you and I, the last couple years, especially you a lot earlier than I did, got really excited about the large… Like the business of it, which goes into, you read the subtitle of the first book, the subtitle, the second book is create generational wealth by investing in large multifamily real estate. Can you explain the difference? I know I’m taking back over the mic here, David. I’ll get back to you in a second. But What’s the difference between achieve financial independence with small and create generational wealth? What’s the difference there Brian, between the two concepts?

Brian:
I think every everybody’s got their own definition of course, but the way I look at is financial independence. You want to have the freedom to live the life you want to live, make your own choices and not be boxed in by constraints that other people put on you. And generating that financial independence, that’s having enough income that you don’t have to rely on somebody else. You can make your own decisions, do what you want to do. But at that level, it’s really about you and your spouse, perhaps, but when you start to get into generational wealth, you’re looking at a level of freedom, not just for yourself, but for people that you care about or are special to you in your life, whether it’s your kids, your grandkids, causes that you believe in that you want to continue on and impact after you’re gone. To me, that’s what generational wealth is. It’s making a lasting impact that’s going to affect the lives of others after you’re no longer there.
So it’s a whole nother level. Can you achieve generational wealth through small multifamily? Absolutely, you can. There’s plenty of people who do that. But certainly you can put your investing on steroids if you go bigger. I think the real message there is you can do that if you choose to do it. It’s not necessarily better or worse. But we want people to know that don’t be intimidated by those large properties because it is within your reach.

David:
So to sum up what separates small from large multifamily, one thing was the way you manage it. Do you know your tenants names or do you have a person in charge of managing that? It was also mentioned financing, are you just getting a loan yourself or I’m assuming here, are you raising money as a larger group? Is that basically what you guys stance is?

Brandon:
Yeah, those are three of many, and it’s a blurred line, right? You could technically, you could treat a duplex the same way you treat a 200 unit property. You could create a syndication or raise money and get this… You could treat a two, three, five, 10 unit property. Just most people don’t. Most people start in the small multifamily world of managing themselves, figuring it out, maybe they hire a local property manager, they know their tenants names, all that stuff. And then they eventually move into the larger one. I’m curious, Brian, what do you think? Do you need to start with small and move up to large? Can you start with large? What’s your thoughts on that? I don’t think I’ve ever asked you that question.

Brian:
I’ve met plenty of investors who’ve been successful doing both. And it was eye opening for me when I did that. But I have seen people jump in and start with a 70 unit, or even 100 unit. And usually they surround themselves with people to help them do that. Right? If you don’t know how to do it all yourself, or you don’t have experience, you have to compensate for that by partnering with the right people. So, you can jump in and do that, particularly if you have a really valuable skill set that you can bring something to the table, whether it’s the ability to find that great deal, and that’ll attract a lot of attention, the ability to be really personable and attract investors who want to bring capital to the table to help people to deal off.
There’s plenty of ways you can get in directly to large. I do you think you’re better off if you can find a way to build that foundation with small multifamily like you did, Brandon, I think you go into it better prepared overall, to get a fuller picture understanding of the underlying concepts that are at play there.

Brandon:
David, where do you want to go next? Do you want to go through the seven steps.

David:
Yes, I understand we’ve got seven steps that work for small multifamily. And I want to start, Brandon, we’ll go to you for those. What is step number one?

Brandon:
Yeah. So, step number one that I wrote down here. And again, my goal today in this podcast as we’re going through, it was to give you a step by step. Anybody listening to this show should be able to go out and buy a small multifamily property. That’s my goal with this episode. So, I broke it into seven steps. So, obviously, I’m kind of leading a lot of the charge here on the small multi site because that’s my strength, and Brian’s leading the charge in the large. But hopefully, we go… This becomes a collaborative effort with the three of us today. So, step number one that I have here. I wrote, commit to the process. What I mean by that is, so many people I meet, I go to a local meetup or a real estate club, or I meet them in the BiggerPockets forums, or they come out and hang out in Hawaii. And they say they want to buy real estate, they say they want to buy multifamily, they’re going to get into it.
And then six months later, they haven’t done anything. A year later, they haven’t done anything. And so I know this is the least tangible of everything. And I harp on this topic all the time. I know, David, you do as well. But there’s just a difference. And there’s a difference in somebody who wants something and somebody who actually does it. Right? Michael Jordan once said, some people want it to happen, some wish it would happen, and others make it happen. And so step one is commit to the process, commit the game. I’m in this, I’m going to do it no matter what. And I’m going to alter my identity by the actions that I take regularly.
This is not get rich quick, this is not I’m just going to wake up one day with a bunch of multifamily. This is going to take a long time to build, but I’m in it, and I’m committed to it. So, I think just the first step has to be that commitment piece that says I am in it. And a good way to do that is… Or to ask have you committed, is are you taking the time? If you told me you were committed to losing weight, and then I went to your house and you’re eating Twinkies and nachos on your couch watching Dancing with the Stars, I would assume that you’re just a liar, right? If that’s all you did every day, because your actions aren’t backing it up. So, if you say you’re committed and you’ve been committed, but you haven’t done any action in the last month or two or week, then there’s some dissonance in your actions and in your intention. I would say it’s more desire. So step one, I would say is commit to the process. Brian, what do you think on that?

Brian:
Absolutely, agree 100%. In fact, we were talking a little bit before this podcast about that. I commented that there’s a piece of bonus content if you buy the book through BiggerPockets, that you get access to, it’s about an hour long conversation that we had on mindset. And wow! I really wish we could have fit that into the book. It’s such a comprehensive book already. So, we couldn’t get everything in there. But we did record a great conversation and mindset is so important. And the longer I do this, the more I realize, that’s one of the biggest obstacles that everybody faces, and you face it every step of the way. It doesn’t actually go away. So those same limiting beliefs that you might have about, “Oh, how can I do this?” And you never get started. And is it really possible? And I do I have enough money? Everybody’s got this reasons they think they can’t take a step forward.
And so having that right mindset, whether it’s buying your very first duplex, or going from 100 unit property to a 300 unit property, I still have limiting beliefs and I have to check myself sometimes. We’re in the process right now of acquiring a 530 unit. And if you had asked me whether that was something we’d be able to do even two years ago, I would have scoffed at it. I didn’t think I could do that. And now I realized that was another limiting belief.

David:
When I do webinars for BiggerPockets, I have a slide that talks about what commitment is because I think a lot people think that they’re committed, but we don’t have a definition of what it is. And I love this definition. It’s the state of being bound emotionally, or intellectually, to an ideal or course of action. And I love that it mentions both emotions and intellect, both of them have to be there. And being bound, you cannot separate yourself from something when you are bound to it. That ideal or course of action that’s going to happen, you are binding yourself to it. So you can’t separate yourself from that course of action, and you’re connected both intellectually and emotionally. And I love that definition. Because I think when we say you got to be committed, people go, “Oh, I know how to be committed. I’ve been committed to eating cereal every morning for the last 30 years of my life, I can do that.” But they don’t actually adhere to that definition when they’re moving forward. So…

Brandon:
Well, let me ask you, David, then. How does somebody get that? There are people listening and are going, “Ah, I know, I’ve been trying for years to get into this, I just can’t seem to get that level of commitment, or take the right action. I can’t seem to keep promises to myself. I’m struggling with that mindset thing.” So I’m curious, David, how do you see a path forward for those people? And then I’ll fire the same question to you, Brian, how do you see a path forward?

David:
I think it’s similar to when people say, “How do I be a good person?” It’s very difficult to just say, “I want to be a good person.” You cannot generate the desire inside yourself to be a good person. What you have to start off with saying is, “I am a bad person.” And letting yourself feel bad for all the ways that you do something selfishly, or you make excuses for something that benefits you and not other people. What I would say is people should say, “I am not committed.” That’s like, “I think I’m committed, but I’m not.” If your emotions are not involved in the thing that you’re trying to achieve, you are not committed to it. You can’t be in a relationship without your emotions being a part of it. You may be there, you may not be seeing other people, that is not the same as having a living, breathing relationship. Emotions and intellect both have to be there.
So I would say the first step is just acknowledging you’re not committed. The next step is say, “Why am I not? What is holding me back? Am I afraid of being hurt? Am I afraid of failing? Am I afraid of missing out on other options?” Everyone has reasons that stopped them from committing, but we don’t always acknowledge them. So it’s digging one step deeper to say, “Let’s be honest with myself, what is preventing me from committing to this?” And when you identify that, you can start the breakdown of removing that out of the process. And then the commitment should sort of happen naturally.

Brandon:
That’s awesome, man. Brian, what do you think?

Brian:
I agree 100% with everything, David said. You’ve got to want it enough. The hunger needs to be there. I think one of the biggest obstacles people face is they’re looking at this mass… what they view as this massive undertaking. And so just another little key I would throw out there is you got to learn to take small steps and recognize that those small steps add up to the journey, right? So, stop looking at you have to eat the elephant… I get it. You got to eat the elephant like one bite at a time, right? That’s the answer.

Brandon:
Yeah, that’s so insightful. It’s like going to the gym, right? You’re there and you see all these bodybuilders, these just big guys, or women who are super in shape, and you’re like, “Oh, I’m never going to get there.” Because you’re looking at that ideal. But rather than setting that as the goal, maybe the goal should be I’m going to go to the gym twice this week. That’s all I’m going to do. I’m going to take the baby step to get there. Which is kind of the goal of today’s episode, right? We want to get the step by step to getting that deal. So if right now you’re like, “I’ve been wanting to do multifamily for a long time, I want to buy myself a small multi, maybe buy a fourplex, maybe I want a house hack it,” or whatever. What’s like a small action you can do this week? Maybe it’s buying a book, maybe it’s going to an open house, maybe it’s just going to realtor.com and sorting only multifamily.
Just for the heck of it. Just go there and see what’s there. Go to realtor.com, there’s a filter, multifamily only, see what shows up there, or go to LoopNet and register on LoopNet if you want to the larger deals and just download an executive summary of some deal that some broker put out there and read the whole thing. Tiny little step, you’re not committed to anything, you’re not even spending any money whatsoever.

David:
So let’s not give away too many of your steps ahead of time here. You’re starting to get into step number two there. What is the formal definition of step number two?

Brandon:
All right, formal definition of step number two, and this actually is a great transition. Well done there, David. It’s like you’re a podcaster. Define your crystal clear criteria. And here’s what that is. It’s a term I’ve been using a lot lately. And it comes… I kind of came up with this framework while writing The Multifamily Millionaire Volume One, and that was… So many people go into real estate, they’re like, “I just want to buy real estate, I want invest.” And you’re like, “Well, what type?” They go, “I don’t know, I just want to buy real estate.” And when people do that, when they have that lack of clarity, one, it’s hard for them to get excited and take action, it’s hard to become an expert. It’s hard to get other people on your side. It’s hard to get the motivation to do it and you don’t know what the next step is. You don’t even know what the baby step is.
Because you just don’t know. Right? When I got into for example, mobile home parks, it Wasn’t that mobile home parks are the best business in the world. I like them that’s why Brian and I do them together. We like them. But we also like cell storage. We also like apartments. We also like Airbnb. It all works. All of that can help you become a millionaire. We just like multifamily, and specifically we chose at that point mobile home parks because I needed to get clarity so I could get depth. In a world where everybody likes to go a mile wide and an inch deep, in real estate, I wanted to go a mile deep on something to become the world’s best expert at that thing. And so that led to this idea of the crystal clear criteria. And this applies to everybody, no matter if you’re looking for your very first deal or your 1,000th property. And this is what the crystal clear criteria is. And I want you guys to write this down. If you’re listening to this, write it down or pull over and put it on your phone. Number one, define your location.
So where are you going to invest? We’re talking small multifamily on this episode. So, it’s probably something in your own area. It’s probably something right in your backyard. Maybe you’re going to house hack it and live in one of the units maybe not, but it’s probably in your location. Can you do small multifamily from a distance? Of course. But most people will start in their own backyard if you can make it work. The great thing about small multifamily, is that it literally works everywhere. Unlike some houses just will… You cannot buy a single family house in Hawaii and make a cash flow. It is impossible. You’ll just never get it. in the Bay Area, it’s almost impossible to buy a house, it’s probably impossible. Is it possible to even David in your area to buy it without house hacking without doing…. Can you just buy a house and have a cash flow from day one?

David:
Not a standard three, two-

Brandon:
Not standard… Yeah, exactly. You can’t do it. Multifamily though, I would even go as far as to say in every area, at least in the United States, you can find a way to make multifamily work in every area. So, it’s different than single family that you can make a work. So, anyway, location. Number two is property type. What type of multifamily do you want to buy? And in fact, I’m going to throw out a few of the different types here. I just want to read them real quick and make sure I have the whole list here. Property type. So again, this is for small multifamily, but this could be anything. There’s a single story like side by side multifamily, which is like maybe a duplex or triplex, there’s like three, they’re next door to each other, they’re usually touching walls, but sometimes there’s two units on one lot. That’s a certain type of multifamily. And then there’s up and down, right? Where there’s a unit upstairs and a unit downstairs.
Maybe three floors and there’s top and bottom. Then there’s the cottages or ADUs, a little different. Cottages is like there’s a bunch of little properties on one lot, ADUs is where you add another unit to a single family house. Then there’s the monster house. You guys know… If I say monster house, it’s like think Frankenstein, where Frankenstein’s monster was made out of like pieces of a bunch of other little like dead bodies. Right? And so it’s all pieced together, bolted on. That’s how I look at a monster house. I’ve actually owned numerous monster houses in my life. In fact, my own house here in Hawaii is kind of a monster house. It was a single family house, and then they added on and they remodeled the basement at some point in the last 50 years. And they turn it into a multifamily. So a monster house is like a single family house that’s been hacked together to turn it into multifamily, sometimes legally, sometimes not legally. And again, I go into depth on what the legal side of permits and zoning and lending and all of that is with that stuff.
And then there’s a starter apartment building usually a five, 10 15 unit building. And then there’s like a garden style apartment and then there’s the larger apartment stuff that Brian gets more into in volume two, but the idea is what do you want? And if you want the starter apartment, that five, 10, 15 unit kind of building, then go after that. Define what that is. But if you want a duplex and you want to live in half of it, then define what that is, but have a clear idea of what you’re headed for. You can always correct course along the way, you can add more later. But right now what are you going for? Anything you guys want to add on that, Brian before I move on to the rest of the CCCs? I know I’m talking a lot here. Okay, so number one is location, number two is property type, number three is condition. That’s self explanatory. Do you want a fixer-upper, something you can completely remodel, something that’s already done, a new build? What do you want? Price range.
We talk a lot about having a maximum purchase price which you can work backwards on. How much can you afford to buy? But also, I think it’s important to have a minimum purchase price. This doesn’t get talked about enough. In our world of the larger multifamily, we have a minimum right now about five million dollars. We don’t want to buy anything under five million. Now, why would we say that? Because it takes the same amount of work to buy a three million dollar property as a $10 million property. So for me and Brian, we have a minimum, it’s not worth our effort to focus on the entire spectrum, but let’s pick a range and go after that. And then finally, the last one is profitability, which means you should know what makes it a good deal. Now when we get into larger stuff, we can talk about profitability different with Brian on the next episode.
But when I look at profitability, I’m talking about how much cash flow that’s going to generate. So if you’re house hacking, maybe it says, “Hey, your goal is to live for free.” Or you’re going to buy a fourplex, maybe your goal is $100 in cash flow per unit, or I want to make an 8% cash on cash return. If you don’t know what those terms are, you can google them or you can go to BiggerPockets, or you can read them in the book. But having an idea of what makes a good deal allows you to decide is this a good deal or not. So many people are like, “Well, I don’t know how to find a good deal.” And I’m like, “Well, what’s a good deal to you?” “Well, I don’t know.” “Well, let’s start there.” So again, the crystal clear criteria is knowing what location, what property type, what condition, what price range and what would make it a good deal, what makes it profitable?
And when you can define those five things, now that’s a mile deep, now you can be like, “I am the best person in my area and I’ve focused my marketing and my analysis and everything off two to four unit properties in Cincinnati that are in a fixer-upper condition somewhere in the 100 to $300,000 range and I To make at least 10% return on my money.” Wow! Just defining that makes you more committed to the process, which relates back to the first step, right? Because now you’re like, “Oh, I’m serious,” versus somebody who’s like, “I just want to buy real estate. I want a good deal.”

David:
So do you have examples in the book of how people can help determine these and tricks for picking the right ones?”

Brandon:
Yeah, actually have a whole chapter on each of the CCCs. So there’s one on property type, one on location, where we go into crime and… Yeah, much more detail. So yeah, condition, probability, price range.

David:
That’s a common question. A lot of people ask that, how do I pick this part? They don’t realize what they’re asking is how do I get crystal clear criteria. So I’m sure that has some really good information in there.

Brandon:
I know the question comes up all the time whenever I talk about this. They say, “Well, how do I know what to pick?” And I like to say, “It doesn’t really matter.” It doesn’t really matter. It’s more important that you decide, than what you decide good. “Well, I don’t know if I should buy a mobile home park or a bunch of townhouses.” They both work. What fires you up? What gets excited? What episode of The BiggerPockets podcast were you listening to and you’re like, “Oh, what that guy does sounds so cool.” Great, do that thing, because that works. So, it’s more important that you decide than what you decide.

Brian:
Yeah, totally agree with that. It’s hard to hit a bull’s eye when you don’t know what target you’re aiming at, right?

Brandon:
This is why we like Brian, he can summarize an hour of me rambling into one sentence.

David:
It makes more sense.

Brian:
I love when Brandon came up with this acronym, absolutely love it, what it communicates. And it’s the importance of the specificity. And that’s one of the objections we hear from investors all the time. Right? I can’t find a property. But then, maybe Brandon, you could speak real quick to how does that relate to your crystal clear criteria?

Brandon:
Yeah. The idea being… They say, “I can’t find a property,” I always work backwards to, define your crystal clear criteria. Tell them what you’re looking for. Right? And 99% of the time they can’t do it. Now, if they can, then it’s like, “Okay, well, how many offers did you make last week? How many deals did you analyze? Let me see your…” Multifamily real estate, especially all real estate is very… It’s a business, it’s not a complicated thing. It’s just like you can dissect a little thing, and you can find out where the problem is, and then work backwards. But again, 99% of the time, they just haven’t defined their criteria. So they can’t get good at marketing for deals if you don’t know what you’re looking at.

Brian:
Yeah. And if you’re overwhelmed with volumes, just an enormous amount, if you don’t have that CCC, you have so many deals to try to look at and figure out. It can bear at you. Right? So if you’re going to find that, if you’re going to hit that bull’s eye, let’s define the target before we pull back the arrow. So…

David:
Next step in the small multifamily process, Brandon, what do we have?

Brandon:
The third step is, so now we’ve got the commitment to it, we got our crystal clear criteria. Now, we need to get leads coming in. I know a lot of people say that they should start… The question is, should you start with leads, or should you start with getting financing in order? I am actually a bigger fan of starting with the properties, getting leads. It doesn’t mean you have to buy the properties, but I think nothing fires me up anyway, than making it real. When I see a property in front of me, even today, after doing this for 15 years and buying multifamily for like 15 years, I still get excited when I pull up realtor.com or Zillow, or I get a listing from my agent, and there is a triplex. And I’m like, “Oh, great.” And there’s the numbers and I can run the numbers. I just love that piece of it. So, I like to start with getting leads and there’s two sides of leads, there’s on market and off market.
When we’re talking small multifamily or large, you can get deals that are listed for sale through a real estate agent, or you can get deals that are not listed and you go and actually hunt down those sellers, And I would argue small multifamily is this really sweet spot where there’s a lot of people who own them who don’t know what they’re doing. It’s very common, right? So, they may be inherited the property from some relative, their mom and pop meaning they’re not professional managers, they don’t know what they’re doing. They have difficulty managing. Small multifamily tend to attract and I don’t want to generalize, but I’m going to generalize, they tend to attract a lower income type of tenant and lower income tenants tend to be a little more difficult to manage is one of the reasons I like it because I like solving problems and I like being good at something that most people are bad at.
So small multifamily is like there’s a lot of people who own it and they struggle. So the reason I think off market is such a powerful way to get deals in the small multi space, is because these people don’t even know that they have a problem until you contact them. And you can get a real estate agent and they can help you find small multifamily properties. There’s tons of duplexes, triplexes, and fourplexes and five, 10 units on the MLS. Those are all over. But if you want to go real in depth and getting really good deals, go off market. I’ll give an example. My fourplex that I bought for my daughter Rosie, you guys have heard that story before probably. I bought a four unit property for my daughter Rosie, we remodeled it, we did the burst strategy with it. I pulled out my cash and now it’s set up to be paid off by the time she goes off to college. That property makes me over $1500 every single month and just pure profit. I can spend on whatever I want. What I call pure cash flow, which is awesome.
But in addition, it’s going to be paid off by the time she goes to college, so now it’s going to pay for her college education, I got that lead off market doing something that we all call direct marketing. I’m sure most of you know what it is. It’s in a lot of my real estate books. But it’s also talked about in the Multifamily Millionaire. But this idea of off market… And that’s one of many strategies that we talked about for off market deal finding. And again, small multifamily property is this great spot that’s too big for most homeowners to go and buy because they’ll want a cute house and a cute kitchen and a cute front porch for their 2.1 cute kids. And it’s too small for the big guys, Brian and I didn’t start Open Door Capital to go pump down fourplexes and eight units, right? So, the level of machine power that Brian and I have built in Open Door Capital, we’re not hunting for the five unit properties really.
And so there’s this really cool sweet spot that you can find great deals and get leads by going off market in that space, which means you’re listening to this thing, you can find some awesome deals. Anything you want to add on that?

Brian:
Yeah, I would go so far as to say from a process standpoint, if you’re going to pick one area that you want to have as your superpower, or just knock the ball out of the park, it’s generating leads, because if you can find those deals, and that’s what I love, Brandon, there’s so many great tips in the book that people can take away to find those deals. And both in volume one and volume two, whether you’re looking for small multifamily or large, it’s just chock full of ideas. And that’s one way to really set yourself apart and get other people’s attention.

David:
Yeah, the point I would add is when people are trying to figure do I want to go off market or on market? The analogy I like to use is it’s like saying, “Do I want to go catch a fish out of the river? Or do I want to go buy a fish at the store?” It will be more expensive if you buy it at the store. Absolutely. But it will be more convenient. And that would make more sense if you don’t have fishing skills. Some people love fishing so much that they just want to go catch the fish. And it doesn’t even matter that it’s cheaper, but they enjoy the process. Like what Brandon was saying, right? And other people love real estate, but they hate fishing, they don’t want to have to like smell like a fish, they just want to go buy it right out of the store. The problem I find people get into, is when they want the price of doing it yourself with the convenience of going to the store. And you just can’t make that work.
You have to understand whichever road you choose has its own pros and its own cons, make peace with that, work with it, as opposed to trying to say, “Well, how do I get an off market deal with the same little amount of work as if I could just go on market and I could find the property?” Do you guys see any flaws in that perspective?

Brian:
I love the analogy.

David:
All right, cool. All right. So, the next step here, once we’ve got leads, this kind of follows your lap funnel, Brandon, it has to do with making an offer and negotiate on that property. What can I expect to get out of your book when it comes to teaching me how to make an offer and how to negotiate?

Brandon:
Yeah, good question. So yeah, making an offer is something that so many people are afraid to do. They’re like, “It’s kind of terrifying.” Because now it’s commitment, now you’re really into the thing, because now you got earnest money, and now you got all this other stuff in place. So anyway, so point being, how you make an offer, I would say depends on how you got the lead, is it on market or off market? So, on market, meaning you have a real estate agent, the seller has a real estate agent, your agent’s going to help take care of the whole offer. But this is one of the main reasons why I think almost every new investor, especially if you’re getting multifamily, get an agent who understands real estate investing who can help you with the process. I don’t care if you’re not going to hit a home run and that first duplex or triplex, fivePlex isn’t going to be a home run and knock it out of the park. It’s okay.
It’s just really helpful to have a guy like David Green going, “I watched about this thing, and hey this is a good lender, or here’s a little gotcha that they put in the contract.” Super helpful to have that. And I will all day long encourage new investors to sacrifice a little bit of a home run for the base hit, just get into the game. I know David, you said the same thing many times.

David:
That’s a great, great point. You’re not good at anything the very first time you do anything, so just make peace with that. And your basic goal is, “How do I just get on base? How do I not get hurt really bad?” You’re not going to knock the person out with your first punch of the whole fight. Now you could get good enough to where eventually you do that. I think Brian’s at that level. Brian’s got enough experience that he can pick and choose his battles, and he only swings at pitches that are going to be a home run for him. But you get to that point, you don’t start at that point.

Brandon:
Yeah. And in fact, I probably should have added another tip in here. But I will say this, and it’s related to making that offer. And if you’ve been on a BiggerPockets webinar with me ever, or David, you know what I’m about to say. Every property has a number that makes it a good deal. Every single property out there has a number no matter what it is. Now, that number could be negative in some cases, but every number… You could always work backwards from whatever your crystal clear criteria has for profitability. Like, hey, I want a 10% return or whatever your number is. Every property has a number, you could figure out what purchase price you could pay for it. It’s just math. A lot of people get freaked out by this idea of making an offer. So, I would first say get really good at the analysis side. And when it comes to small multifamily properties, like in the book, I walk people through the Foursquare method on how to do that.
I walk people through exactly how to run those numbers. But you can also use BiggerPockets calculators, they’re designed for single family and small multi. I’ll be the first to admit, the BiggerPockets calculators are not good if you’re trying to buy a 75 unit apartment complex with syndication and a 70, 30 split and a waterfall, right? All that, you’re going to want to read a book on multifamily large scale like the Multifamily Millionaire Volume Two, because that’s more in depth. But BiggerPockets calculators are great for the small stuff. So just get that number, get good at that part. And once you’re so confident with analyzing a small multifamily, and knowing exactly how much you could pay, it takes so much of the fear out of making that offer and going after it. So, anything you want to add on that, Brian?

Brian:
I think the only thing that I’d add is just this is another example of where small multifamily and large multifamily and your approach to negotiating, extending offers is a very, very different process. So, you’re going to find when you go through volume one, you’re going to read one process, when you get to volume two, you’re going to realize that things are done entirely differently. So, I’ll just throw that out there.

David:
All right, so I’ve read your book, I’ve made an offer, I successfully negotiated this thing, I’m happy, I go give a review on Amazon, because I’m so grateful for what Brian and Brandon taught me. Now, I’m married, congratulations. And I get to start the fun part of real estate investing, not. It’s the management, right? This is the part where everybody tends to sort of lose steam when it comes to… It’s always fun to hunt that animal, and you’ve got it, and now you got to clean it and continue to do so. So what advice does your book give me on managing the property?

Brandon:
Yeah. We wanted to have an entire chapter in there, obviously on the managing side, but… Again, this is a split between small and large, if you’re talking small, you’re probably either self managing, or you are hiring a local property manager. Now, I would actually highly recommend the local property manager instead of self managing. I think there’s a lot of value to self managing and knowing how to do it, but I’ve been saying this thing a lot lately, and I’ve been thinking about this concept. I might even put this in a book someday in its own chapter. But so many times in life. And I think David, you’ll like this one. So, many times in life, we choose to do things ourselves, just because we are avoiding the more painful or outside our comfort zone activity. For example, I think it’s a good idea to self manage.
So I’m going to self manager. I want to know how to do a rehab, so I’m I’m going to do my own toilet repair, right? Because we think we’re… What we’re actually avoiding is the harder work of stepping outside our comfort zone and being a leader and being a manager and having systems and having processes. And so I would just encourage people, if you’re going to manage yourself, nothing wrong with that I still manage some of our own, kind of in house, we built our own in house management company, just understand the difference between avoidance activities, because you don’t want to be a leader. And do you really want to manage yourself? So if you’re going to manage yourself, great, there are systems. I wrote the book on managing rental properties is all about managing rental properties. And there’s again in the Multifamily Millionaire, both books have instruction on how to manage. But management really comes down to having policies in place, and then holding everyone accountable to those policies.
All of property management can be condensed down to those two things, have policies and hold everyone accountable to them. It’s so much easier when you do that. It’s the expectation things, David, you always talk about. If you set the expectations first, and this is what it looks like between a tenant and landlord. And then you hold everyone to that, there’s no surprises, there’s very little drama, it is what it is. And it’s very much a business, it’s when you start treating property management like a hobby, or like you’re renting your bedroom out to your buddy instead of a business, that’s when things get rough, and things get hard. Anybody who ever tells me horror story after horror story of how much it sucks to be a landlord, I always know it’s because they didn’t treat it like a business. Always. 100%.
Now, I’m not saying there’s not hard times in owning a property, but if people are just complaining over and over and over about how much it sucks and how this tenant hasn’t paid rent nine months, this tenant’s bad and this one had to be evicted 12 times over. It means your systems aren’t good enough. I still have evictions, but I don’t whine about it. Because that’s part of the business. I just have… I expect it, I manage expectations, I know how to deal with it. And so property management is actually fairly simple when you do that. What do you guys think on that?

Brian:
I think there’s pros and cons to both. So what I love is volume one goes into both, right? It tells you how to hire a property manager. And it also tells you it’s got a ton of tips on self managing. But I think what’s right for each person is different, right? So, totally agree that for some people you’re better off getting a property manager, but for others, they may be better suited to try to do it themselves. There’s certainly benefits if you can pull it off if you’ve got the time and the inclination and the skills and you can do that self management, you’re going to save yourself money assuming you don’t make any massive mistakes. So I think if you read volume one, you’ll understand a little bit more about pros and cons of each and then you can look at your own life, your own skill, set your own motivations and say, “What’s right for me?” But certainly as you grow, and you get bigger, self management, you’re basically starting up an entirely separate business that’s outside of real estate investing.
And basically, if you’re going to do that, you’re growing two businesses at the same time. And that can be very demanding. And so by the time you get to those large properties, in volume two, we’re assuming you’re using third party management because otherwise you’re building a massive business as a side business, that’s actually completely separate as from being a real estate investor.

David:
It’s a great point. And that doesn’t just apply to management. That could apply to rehab work. Okay? I don’t want to buy a property or I bought one, I don’t want to pay someone to do, so I’ll put the flooring down. Well, if you know how to put down flooring, that’s great if you choose to do it, but if you don’t, you’re now learning the construction business. And there’s a lot of things that go into the picture you painted in my head, Brandon, when you were talking there, would be Brian’s example of you need to know the bull’s eye, what the target is if you want to hit it. So, I started imagining a bowler who’s like, “Okay, those pins at the end of this alley, that’s what I’m shooting for.”
And the commitment we talked about is sort of how much emphasis are you going to put on that ball to get it to roll all the way from where you are to where the pins are. Because if you don’t knock down a pin, it doesn’t matter. If you got three quarters of the way there or one quarter of the way there, the result was the same. The standards we talked about are sort of the bumpers that you put in the gutter, your decision, your investment can wander. But the standards, we’ll always bounce it back to keep it in the lane, and eventually it will hit the target. And when we relax on our standards, that’s when the ball can fall off, go in the gutter, and we’ll never hit the target.

Brandon:
That’s really good, man. And you mentioned standards. So in the book, I talk about something called the five star tenant in a chapter on self management, where basically say there’s a way to determine… There’s a way to set standards for the type of tenant you attract. I got requirements for income, for job stability, for rent history, for credit. And for criminal background. That’s what makes a five star tenant. And if you want an easy job managing tenants, just make sure you get a five star tenant. But that’s not the only thing. The other thing is becoming a five star landlord. And this is what I think most books and conversations about landlord miss, it’s always about how bad the tenant is and how you find the right tenant, their good tenant. But so much of landlording is not about the tenant, it’s about you as a landlord. So that’s why I go into like the five points, just like five for the tenant, there are five things every landlord should be, the type of landlord you are. And if you can nail all five star landlord things, it’s so much easier to manage properties.
And then when you get into hiring property managers, it’s so much easier to control your property manager, because you just understand how the business works. And you can see, “Oh, that’s not a five star property manager, that’s a four star property manager, they’re missing that fifth thing.” It’s all about again, having those expectations met for the landlord and for the tenant. And when you do that, everything’s a lot easier. So, anyway.

David:
Next step. So I am sold on looking for leads, and I found the property, and I have confidence that I know how to write an offer and I will negotiate. So I’m ready to go. Brandon, where am I going to find the money to buy this thing?

Brandon:
Hmm, that’s a good question. There’s a place called a bank. And if you go in there, and rob it, you can make a whole lot of money. Other than that, yeah, let’s talk about… Again, this is a massive difference between small and large. Well, not massive. There’s some crossover there. But I’ll say there’s a difference there. When it comes to small multifamily, first of all, if you’re just getting into it, I highly recommend considering house hacking. I know David, you preach this to the ends of the Earth, I preach it to the ends of the Earth as well. The beautiful part about small multi, and when I say small in this… When we’re talking with financing, I’m talking about two, three and four unit properties. That is considered residential. When you go into a typical bank, a lot of people don’t even notice this, but there are two, there is a left side of the bank and a right side of the bank. Not always, but very common.
And one side is for residential stuff, and one side is for commercial stuff. So one side of the bank has all the people doing bank loans for houses and cars, and that side of things. The other side of the bank, and again, it’s not always separate sides, but a lot of times it is. They’re dealing with business loans and commercial real estate and all that. So again, four and below, it’s on the residential side, five and above is on the other side. So, if you’re in a house hack, or if you’re even just going to buy a two, three or four unit individually, you’re going to use the residential side. The benefit of house hacking though, is the FHA loan or the other conventional loans where you can get a loan for as low as three and a half percent down, or really zero down if you’re a military veteran or you live in the middle of nowhere and you want to use a USDA loan.
But you can get these loans for three and a half percent down, live in one unit, rent the other ones out. So one my favorite strategy that I hear about all the time, and I’ve done it, is where you live in one unit, rent the other three out, you buy a fourplex, live in one of the units, rent the other throughout. Now you’re living for free, maybe making money in the process, and you’re getting training wheels to be a landlord. So from financing if you can house hack it an FHA loan, what an amazing way to get started in real estate. And because now you’re living for free, you can put a lot more of your income towards buying other multifamily in the future. Just a great jumping off point. But that’s not the only way to do it, you could also just get a normal loan, you could go through the bank process, put down 20 or 25% down and go buy that fourplex, or go buy that eight unit with a normal loan.
Typically, on the residential side, the one, two, three and four unit properties, you can get 30 year financing, which means we spread our loan out to 30 years, which is awesome. But on the commercial side, obviously, and we’ll talk about that more in the next episode. The loans are a little bit different. So something to know about there. Anyway. And there’s also creative stuff. So, I was going to say there’s creative stuff too. I wrote a whole book on creative strategies, but I put a bunch of them into volume one of the Multifamily Millionaire. Some of the creative strategies that work well for the small deals. Things like seller financing and lease options and all that.

David:
We should highlight, I think a lot of people hear house hacking and assume it’s what Brandon just said. Buy a triplex, live in one unit, rent out the other two. That is house hacking in the multifamily model. But house hacking is a more broad term that can be used. You can house hack single families, you can house hack single families in different ways, right? You can rent out rooms, you can rent out an ADU. It’s more of a principle of renting out a part of your property than it is just buy a triplex and do it this way. But I do think multifamily is sort of the easiest way of every way you could house hack as far as the least amount of work required from you and the simplest to accomplish.

Brandon:
Most spouses are more okay with having somebody in an ADU. A separate part of your house or downstairs or upstairs, than having them in the bedroom next door to you. It’s difficult to convince your wife, “Hey, honey, let’s go have a random stranger move into the bedroom next door to us.” That’s weird, right? But buying a duplex and having them live in half of it, most… Not most, maybe most. Most spouses would be like, “Okay, I understand the sacrifice for this, but it’s not that big a deal.” I literally do it here in a two million dollars property in Maui, which is something that I should say. It’s not… When people think house hacking or buy a duplex, they think crap property, they think I got to go buy some dumpy D class property in a D class area, and my tenant is going to be doing meth out of my garage. I live in a super stupid nice house in Maui with an ocean view and pool and all that. And Ryan Murdoch, one of my partners at Open Door Capital, he’s in the back. He literally rents from me back there.
And then I got a downstairs area that I rent out. And so get that out of your mind that house hacking has to be a dirty thing. It’s very much, there’s nice properties with extra units or ADUs or whatever that you can live in and reduce your expenses. It doesn’t mean you’re living for free, but you can live cheaper. So yeah, how second is great way.

Brian:
So Brandon, there’s four chapters I thought I should share with everybody. It’s actually four chapters of volume one on how to finance. And what I love about that is completely dispels the myth or that obstacle that so many investors cite to say, if I don’t have a lot of money I can’t start investing, right? So there’s creative financing opportunities in there. There’s the ones you just mentioned, and there’s others. And anybody who reads those chapters is going to realize they have so many different ways that they could approach it and actually get that first property financed, even if they don’t have a lot of money.

David:
All right. Well, I think that stops a lot of people from moving forward. So I’m glad you guys put in some content, a chapter on this financing component, because just the other day, two days ago, I was at my chiropractor’s office, and he’s a little bit younger, he just got out of medical school, or what they go to. And we’re talking about houses. And I said, “You could buy a house for three and a half percent.” And he said, “I don’t mean to offend you, but that just seems too good to be true. That’s got to be a scam.” I was like, “Still, doctors are still thinking along these lines.” So if you’re listening to this, and you’re thinking, “I don’t have enough money, my credit’s not good enough,” whatever, contact a mortgage broker and let them tell you if that’s the case.

Brandon:
One more thing I do want to put out there is one of the chapters in the book is on partnerships. And I don’t want to go into it in depth right now. But if you guys know me, you know I love partnerships. One of my very first properties with a triplex, I didn’t have the money for, I brought in a partner. So, in the book I talk about something called the kite method on how to attract unlimited private money and partners to invest with you. So, if you follow like the right principles and guidelines on how to get other people to partner with you, you can literally build a massive empire using none of your own money. It’s totally doable. And then there’s the [inaudible 00:54:07] strategy we talk about in there as well. So, all that is doable. So, like Brian said, dispel the myth that you have to have a lot of money to get into multifamily. It’s just not true. All right, moving on.

David:
What is the next step after it comes to financing and managing the property?

Brandon:
So we talk about managing, we talk about financing. So the last thing really, step number seven here, is I wrote rinse and repeat. And what I mean by that is, once you get one done, once you got your first multifamily, it suddenly becomes a whole lot easier. And then you can do another one, and then another one, and some people will stay that level. They’ll buy a fourplex and then a threeplex and then duplex, whatever. They stay small and there’s nothing wrong with that. You can get like I said earlier in the subtitle the book, you can achieve financial independence by investing in those small deals. Like I said earlier, I got $5100 a month coming in, in profit, in pure cash flow from one small multifamily property that I own. So, I’d asked you this, everyone listening right now. How many of those properties or even if you’ve got one that was half as good or as quarter as good, how many of those would you need to be able to quit your job? It’s not as many as you might think. And that’s why I think multifamily is the path towards financial independence.
Now, if you want to get wealthy, if you want to become extremely wealthy, that’s when you’re going to want to scale up. And this is the final point I’m making, then we can move on to part two of this, and you guys can listen to the next episode. But the great part about small multifamily, my favorite thing of all, is that it’s a gateway to the larger deals. Once you master the small stuff, you buy that duplex, you buy that fourplex, you build your confidence, your knowledge, your experience, all that. And so then you maybe take on a five unit, or a seven unit, or an eight unit. And then you do that one, and you’re like, “Oh, this isn’t so hard, you expand your mindset.
And then maybe you buy a 15 unit or a 20 unit, and you’re like, “Hey, I’m kind of getting the hang of this.” And then you buy a 40 unit. And now people are saying, “Well, I don’t have the money to buy a 40 unit.” Again, we talk about that in the book, and we’ve talked about it today, dispel that myth. Because now you’ve got momentum on your side. And that’s the thing people don’t realize, is once you start getting into bigger deals, you’ve got momentum, you’ve got a lot of people out there who want to invest their money in your deals. And if you know how to pitch them right, you can scale up pretty rapidly. And that’s when you make that shift to the larger deals.
So the analogy in the book I use is this, Super Mario Brothers, you remember Super Mario Brothers, the original Mario Brothers on Nintendo, right? My favorite game ever. So, you start on level 1.1, and then you go to level 1.2, and then 1.3, and then 1.4. And at the end of one four, you go to level 2.1, 2.2, 2.3, 2.4. And there’s eight levels, each with four of these sub worlds. So in total, eight, 16, 32. There’s 32 levels in the game. But there’s this cool little hack for those who are good at Mario Brothers.
Remember, there’s this little secret vines, you hit this… break this block, and this little vine starts drifting upward, and you can climb that bean stuck up into the clouds, and then go to these little warp tubes. And you can literally jump from level one to level three to level eight. So, when I was younger, I could beat the entire game of Mario Brothers in eight minutes, not even kidding, eight minutes for the entire game, the way that I did that is by doing these warp things, that they jump in from level one, three, eight. That’s what multifamily lets you do. You don’t have to buy a house, then another house, and then maybe a small deal, you can jump from level one to three to eight. And by the time you get to level eight, let me just tell you, it’s so good. I bought more properties. And Brian, you’re probably on this thing too.
We bought more units in the past year, including the ones that we’re now closing on here shortly, than my entire career 15 years combined. We’re buying more in this one… In fact, we got more properties under contract in the last three months than my entire career combined, number of units, because that’s what it’s like when you get to that next level. And that’s where we lead into volume two of the book is how to grow that and how to scale that business. What does level eight look like? So, anything else you want to add on that before I kind of move to the close?

Brian:
No. Brandon, one of the concepts that you go over in the book is the stack method, which I think is fantastic. And that’s really what you’re talking about here, right? So I don’t know, if you want to share a little bit about the stack method?

Brandon:
Yes. It’s basically that concept of you buy a small property, and then you buy a significant larger one and then a larger one. And let’s say you bought a duplex this year, next year you bought a fourplex, then the year after an eight unit, then a 16, and then a 32. At the end of five years, if you just doubled each year, you’re never going crazy, you’re never going from zero to 100. You’re just accelerating exponentially. And so the beauty of that is you’re… Again, you’re never going crazy, you’re never going super risky.
You’re building knowledge, confidence, motivation, momentum the whole way. But within five years, you can have enough properties to quit your job. Maybe in three years. I’ve seen people do it in two years. And that’s the power of multifamily. And so that’s where the stack comes in. And there’s a whole chapter on that in there. And I love that concept. And that’s where the later parts of the stack, you start just rapidly growing your portfolio to the point where you’re making millions of dollars every year in cash flow or in equity. And over time that just gets better. So, yeah. I love this stuff. Multifamily is so fun.

David:
We can tell the passion you have is clearly coming across the mic, Brandon, I think this is… You’re making me want to read this book.

Brandon:
That’s called dominating. Okay, good. I’ll send you a copy. I might even sign it for you, David. You never know. I will say this. You didn’t ask me to say this, but I’ll say it anyway. Yeah, if you want to get the book, go to biggerpockets.com/multifamilybook. You can get both of them there. And when you buy both of them, you get a bunch of cool bonus content. So we’re talking less than 60 bucks. We did a bonus chapter called, How to Bypass Small Real Estate Investments and Start Your Journey With Large Multifamily. We did something, Brian wrote a super good white paper on investing in a post COVID world. We did a thing you mentioned earlier, Brian where we talked to my performance coach Jason Jurys, the three of us sit down and talk for an hour about the mindset how to shift your thinking and 10 extra results. And then we did a two hour video with Ryan Murdock called, “No Money Multifamily, it’s on how to do multifamily with no money.
And then another video I did with two of my guys from Open Door Capital that works with me and Brian, who are both getting into their first small multifamily deals. So, Mike Williams and [inaudible 01:00:05], both talk about how they’ve gotten small multifamily deals in a super extensive market, plus raising money pitch deck and a bunch more. So all that you get when you get the book. So I think you guys will like it. Again, biggerpockets.com/multifamilybook, you can get it there. Anything you guys want to add on that?

Brian:
Not sure you could find a better return on investment out there than-

David:
That’s the same thought I had, Brian. That’s so funny you said that. For 60 bucks, could you get a higher ROI if you get-

Brandon:
Sorry. I almost forgot. I did a four week class also on multifamily where I broke down between an hour and a half to two hours each of those four classes. I did the whole month of June. Oh, sorry, July. The whole month of July I did this class and I recorded it and if people buy also the book before the end of August, they also get access to those recordings, that’s more like seven more hours of content. So just keep that in mind as well. That’s only available if you buy it before the end of August. So, sorry, I didn’t mean to cut you off there, but that was pretty important to mention.

David:
We are going to have another episode of Multifamily Millionaire where we are getting into the large multifamily stuff, sort of the stuff [inaudible 01:01:08] Brian’s wheelhouse. And of course Brandon is going to weigh in on what he thinks. So, I want to thank you to both for this is a long episode. You gave away a lot more content than I thought we were going to do. That was pretty cool. I think I want to read that book more than I thought I was going to want to read it. I already do some multifamily property. Now, I want to see what you guys have to say. So we’re going to wrap this one up, and we’re going to get to Brian’s reading chapter one of his book right after this. So thank you guys both. This is David Green for Brandon, the dominator Turner signing off.

Brian:
Introduction. If people aren’t calling you crazy, you aren’t thinking big enough; Richard Branson. “I just don’t want to see you ruin your life,” the broker said in a patronizing tone that made me want to reach across the table and strangle him. “You seem like a nice guy,” he continued. “But it’s pretty obvious you haven’t done this before. Some very experienced investors that looked at this property and passed on it. You just don’t know what you’re getting yourself into.” Maybe he had a point. After all, he was the big shop broker from out of town in a fancy suit who had been doing this for decades. And he was right. I didn’t have a lot of experience and the property I had under contract was in distress. I certainly didn’t fit the profile of a typical buyer. In fact, a small investor acquiring a property of this size was far enough outside the norm that some people might consider it reckless and inappropriate.
Still, the way he said it really irked me. And that infuriating smile of his I decided was just a little too big. He may have been well intentioned, but he struck me as a bit too smug and condescending. I imagined if he had a puppy at home, he’d speak to it in the same way he was speaking to me. In fact, I have expected him to reach over and pat me on the head. Maybe offer me a treat. As if I’m cue, his voice interrupted my thoughts. “Would you like another donut?” He asked. “Still bidding?” In hindsight, I realized my negative reaction probably had less to do with his demeanor and more to do with my own insecurities and the hard truth of his words. Despite any displays about word calm under the surface, I was waging an internal war, fighting to suppress a cacophony of doubts and fears. I was trying to buy my largest property to date. And a lot of naysayers were making me second guess myself. Fortunately, while the brokers words played on my anxieties, they didn’t deter me.
I moved forward with the deal and eventually managed to turn that property around, creating massive value as occupancy improved, income client, expenses came down. Even so, the broker was at least partially right, because when you take on a challenging project, it’s never really as easy as just turning the property around, which almost makes it sound like flipping a switch. Although most aspects of multifamily investing aren’t complex, it takes a lot of work and can be a bumpy road to say the least. You can expect lots of trial and error, and plenty of setbacks along the way. I did make a lot of mistakes, just as people thought I would. Not only on my first multifamily, but on all the others that followed. Some mistakes were small, some were big. And while some may have been unavoidable, others were downright embarrassing. All in all, I’ve gotten a real education. The lessons I learned as I grew my portfolio would prove valuable over the long run, but they didn’t pay the bills.
Still, if I messed up so many times, how did I manage to pull it off? How did I avoid bankruptcy and not ruin my life as some people had predicted? Well, many factors contributed to my positive outcome. The most important is this, multifamily investments are forgiving by their very nature, and offer a number of benefits that are unique within the investment world. The benefits of large multifamily. Large multifamily investments share the same advantages as most rental real estate, including wealth creation through cashflow, appreciation, forced and passive, tax savings, and amortization, which results in the accumulation of equity as you pay down your debt. Brandon, calls these the four wealth generators of real estate, and for good reason. Given enough time, these four glorious generators can be further magnified through leverage and compounding to create abundant wealth.
In addition, multifamily assets can serve as an effective hedge against inflation, provide diversification to your investment portfolio, and offer a degree of recession resistance not found in other asset classes, which we will explore in more depth in a later chapter. These are all advantages, but let’s not overlook the obvious. The benefits you can realize by owning investment real estate are directly proportional to the size of your holdings. All things being equal, owning a multifamily property that is 10 times as large will generate 10 times the cash flow 10 times the tax benefits and so on. What won’t increase by a factor of 10, the work that goes into it. That’s not to say that investing in large multifamily properties isn’t a lot of work, but efficiencies of scale do come into play. For example, the work that goes into the underwriting due diligence and closing of a 150 unit apartment complex, is not 10 times as much as for a 15 unit complex. It might be closer to 50% more work if that. Other benefits of investing in larger multifamily properties include better lending terms than you could get for smaller multifamily properties.
Diversification of income across more tenants, efficiencies of scale and operations, more opportunity to force appreciation through value ad, more leverage and negotiating power with vendors. More well qualified buyers when it’s time to sell. And greater interest from people who would like to invest in your projects. The income diversification aspect of large multifamily properties is particularly important. Let’s say you own 100 unit apartment building and you make a mistake that causes you to lose a tenant, or three. Most likely the resulting one to 3% drop in income is something you can learn from without missing a beat. Most new property owners have at least a 25% cushion built into their cash flow, which if necessary, can help them muddle through some pretty big gaps, surprises or dismal circumstances. On top of that, if you have an amortizing mortgage, you’re paying down your debt every month, which is building equity and effect creating a reserve that could be cashed in some day at a time of need. Finally, large multifamily properties offer the advantage of allowing owners to force appreciation on an even larger scale by taking steps to boost income or reduce expenses.
A change that might yield modest results in a smaller property, such as the installation of low flow plumbing fixtures, or a modest increase in rents, can create surprising amounts of equity in a large multifamily. As already stated, multifamily properties tend to be forgiving by nature, they operate with momentum, and once they’re headed in the right direction, they can power through most setbacks without significant consequences. If you make as many mistakes as I have, it’s reassuring to know that it’s going to take a lot to derail the train. Even though we took somewhat different paths, Brandon and I shared a pension for finding ways to make improvements that paid some pretty big dividends right from the start. We both over compensated for our blunders by constantly identifying problems and coming up with solutions. Unlocking value by fixing things, improving things, making them more efficient. It might be something as simple as installing higher efficiency light bulbs, or it might involve mustering up the fortitude to deal with unsavory situations.
We have both tackled problems that would make most people’s skin crawl. All along, showing lots of love and attentiveness where before there was neglect. This value add approach turned out to be one of the keys to surviving and then thriving for both of us, especially early in our investing careers. By incessantly seeking out and implementing strategies to boost income and cut expenses, we were able to generate the cash flow we needed not only to overcome our mistakes and setbacks, but also to purchase additional properties and grow our portfolios. After we added enough value to a property, we would refinance it, pull out the cash to do more deals, which in turn continue to fuel our growth. That said, while focusing on value add real estate investments can be lucrative and allow you to grow without raising outside capital, it isn’t easy, and it’s not for everyone.
Over the years as Brandon and I have grown our respective portfolios and expanded geographically, we both learned how to invest more passively by relying on the knowledge and experience of partners and third party associates to get things done. Our earlier hands on experience has proven invaluable as we underwrite deals and oversee property managers. We’ve also realized the benefits of raising capital to fund our acquisitions, which has accelerated our ability to buy large multifamily properties, while providing the satisfaction of creating wealth for others who invest in our deals. The downsides of large multifamily. After hearing all the benefits of investing in large multifamily real estate, perhaps you’re motivated to dive in. If so, we wouldn’t blame you. It’s a decision we both made. But if large multifamily properties are so wonderful, why doesn’t everybody invest in them? There are many reasons, but let’s review the most common and legitimate ones. First and foremost, while investing in large multifamily properties can be lucrative, it’s no walk in the park.
This type of investing requires a lot of hard work and sacrifice. We’ve had the pleasure of meeting dozens of investors who have grown portfolios of 1000 units plus, the one thing they all have in common, a strong work ethic. This should not be surprising, as hard work is a powerful force that can lead to positive results in any field of endeavor. In an interview with 60 minutes, the actor Will Smith said, “I’ve never really viewed myself as particularly talented, I viewed myself as slightly above average in talent. Where I Excel is ridiculous, sickening work ethic.” Among the highest achievers in real estate, you’ll often find the same level of determination, sometimes bordering on obsession. Even when the work is divided among a team of partners, there’s always more to be done. That said, you have a choice about how far and how fast you grow a business. You don’t need to have 500 units in the first year or 2000 in the second. And you certainly wouldn’t be expected to do everything yourself, nor should you. There are plenty of excellent property management firms and other vendors out there who can make your life easier.
Investors who are in it for the long haul, need to have balance in their lives. Just know going in that if you want to excel in the multifamily world, you can’t offload everything. That may be disheartening for people who are under the illusion that real estate investing is an entirely passive activity. However, real estate is a business like any other and it doesn’t magically run itself, especially in growth mode. Are there passive paths to wealth and multifamily investing? Absolutely. If you want to invest in a large scale, but don’t want to put in the work, you can invest in other people’s deals, there are lots of syndicators out there looking for limited partners who are willing to invest in their multifamily projects. These investments come with no responsibilities or authority. You just have to write a check. The downside of this passive approach, you won’t have any control over the outcome, and there’s generally less upside. That said, these limitations can be a fair trade off for people whose commitments or priorities won’t allow for active involvement.
The myths of large multifamily. In an ideal world decisions regarding whether to invest in multifamily would be driven by an objective evaluation of the pros and cons in conjunction with one’s own personal goals and circumstances, unfortunately, decisions about large properties are often made for the wrong reasons. There are many convincing myths out there. Let’s take a look at four of the most pervasive. Myth number one, large multifamily is too complex. Well, there are more moving parts to large properties and analyzing them as more involved. In most cases, they really aren’t that much more complex than small ones. Most aspiring investors have heard this at one point or another, but few actually believe it. When a new investor first enters a large apartment complex with an eye toward owning and operating it, they’re likely to feel overwhelmed. The sheer vastness of the asset and fear of the unknown create anxiety, which can drive people to discard the idea.
When that same investor considers a single family home, a condo or duplex, they probably feel a greater sense of familiarity and comfort. They have probably lived in a similar property and it seems more manageable. Most new investors feel they can handle a small condo. How complicated could it be? What is a 150 unit apartment complex? It’s 150 single apartments, it’s 75 duplexes, or 50 triplexes. At a high level, the issues you deal with are the same. If you can manage a single condo unit, you can manage a large apartment complex, especially since you’re most likely going to have a third party management company to handle day to day operations. You can hire people to help with anything else you don’t have the time for. You don’t have the knowledge or skills for or just don’t want to do yourself. You can also partner. When you invest in a large multifamily deal, there’s a lot more potential profit to split with other people.
Myth number two, most investors can’t afford to buy a large property. This is a particularly powerful and prevalent myth. Primarily because it’s rooted in a grain of truth. Most people don’t have enough money to buy a large apartment building. In fact, even investors who’ve already accumulated a respectable portfolio of smaller multifamily assets, may not be able to make the leap on their own. But here is the real truth. The vast majority of people buying these large assets are not using their own money. They raise money from others and keep some of the equity for their trouble. In fact, in the world of large multifamily, the rarity is the investor who has enough cash to not need other people’s money. There are many ways to structure the acquisition of large assets, and we’ll review those in more detail later. Just know that cash is not a prerequisite for making a large multifamily acquisition. Myth number three, there are no good deals, the market moves in cycles, and valuations can be high or low relative to other periods in time.
However, at every stage of the cycle, there’s a seemingly incessant chorus of people predicting a pending decline or complaining that things are overpriced. The truth is that there are always good deals, regardless of where we may be in the market cycle. Of course, we should clarify what a good deal actually is, since that can be clearly subjective. We would define a good deal as one that cash flows at a high enough level to generate returns satisfactory to the investor with enough of a cushion built in to weather any storms you’re likely to encounter along the way. If you have a long term horizon and can lock in debt at an interest rate that will achieve these results, your downside is limited. A good deal should also have a potential upside that will allow you to force appreciation and increase the value of your investment. Are there deals out there that can achieve these kinds of returns? While it can seem impossible at times, the answer to this question is always yes. The question is, how difficult are they to find, and how hard are you willing to search to find them?
If you’re relying entirely on public sources like the internet and broker listings, finding strong deals can be challenging, and you’re likely to get discouraged. But there are many other ways to find deals, which we’ll delve into later on. Myth number four, you need a ton of experience. This myth is also rooted in a grain of truth. Real estate investment experience is undoubtedly a valuable asset for diving into the world of large multifamily, but lack of it is not a deal breaker. We’ve observed that prominent investors can travel a wide array of paths to achieve their goals. Some start with smaller properties and work their way up using the stack method, which we outlined in volume one. These investors begin with a small property and exponentially grow their portfolio by making increasingly larger acquisitions, gaining knowledge, experience and capital along the way.
Other investors team up with partners who have the experience they lack. Still others leverage valuable skills they acquired through an education or a career that on the surface may seem entirely unrelated to real estate. Is experienced valuable? Undoubtedly. Does a lack of experience preclude you from buying a large multifamily property? Absolutely not. Large multifamily is within your reach. One of the greatest takeaways from all my experience with larger multifamily properties is a conviction that investing in large multifamily deals is within the reach of most real estate investors. There are ways to overcome any limitations you may face, as well as the mistakes you’ll undoubtedly make. If you currently own rental real estate, or have owned rentals in the past, you almost certainly laid a solid foundation for moving up to larger multifamily properties. Everything you’ve learned and experienced will improve your chances of success.
What if you haven’t owned rental real estate and are just getting started? You’ll need to dig in and really educate yourself. A process that by the way, you should never stop. If you haven’t already done so, read volume one of The Multifamily Millionaire, then read this book, then go back and read them both again. You also need to network and build relationships because going it alone as a newbie is a recipe for disaster, you’ll need to do a ton of work and take on the things that others aren’t willing to. However, if you’re determined enough, patient enough and prepared to do whatever work is necessary, becoming a large multifamily investor and creating generational wealth is almost certainly within your reach. In the first volume of The Multifamily Millionaire, we discussed the common problem. Many real estate investors stay within their comfort zone for far too long. They get comfortable with their small portfolio or with no portfolio.
And although their heart and soul yearn for growth and expansion, they stay small because their fear speaks louder than their ambition. This book is designed to be an antidote to fear. We want to arm you with a detailed, tried, tested and true knowledge you need to rise to your full potential. A decade ago, I didn’t listen to Mr. Condescending smile. Instead, I stepped away from my comfort zone and discovered an incredible life on the other side. May this book be your guide as you take your business to the next level toward becoming a multifamily millionaire and creating generational wealth. Key takeaways. Before deciding to invest in large multifamily properties, you’ll need to weigh a number of advantages and disadvantages. Common myths about large multifamily real estate are that it’s too complicated, the properties are not affordable, there’s no good deals, and you need a lot of experience. All of these may have a grain of truth, but are simply challenges that can be overcome.
Despite what many people say or believe, investing in large multifamily deals is within the reach of most small real estate investors. River Apartments part one, I still remember the phone call. The CEO of a real estate investment firm was going to be in town soon and wanted to meet me. His company owned River Apartments, a 115 unit multifamily project in the area. And they decided it was time to sell. Hopefully to me, the call was not entirely unexpected. The multifamily property in question had caught my attention several years earlier. So I had reached out to see if they might be willing to sell. When they said no, I continued to reach out every six months or so. The message was the same every time I checked in. “No, and if we change our mind, we’ll let you know.” Well, true to his word, the CEO was now letting me know. It can be difficult to find good multifamily deals.
So I make it a point to plant seeds like this all the time. When the owner of a property I’m interested in eventually decides to sell, I’ll be the first one they call and I can reap what I sowed. It’s worked for me before and it worked again this time. During my meeting with the CEO, I discovered that the property was an affordable housing project that was currently operating under a contract with the US Department of Housing and Urban Development. This meant that the government was subsidizing the rent to help the residents afford their housing in exchange for the property owner, the property owner was subject to a wide range of operating restrictions, inspections and reporting requirements. However, the CEO explained that the contract was about to expire. Knowing the local rental market, I thought that converting the apartments from HUD to market rate housing could be a great opportunity to unlock some value. Soon after our meeting, I entered into negotiations and started doing some preliminary underwriting.
What I found wasn’t pretty on the surface. Staffing was literally double what it should have been for a project this size. And maintenance costs were exorbitant beyond reason. The CEO acknowledged that there was plenty of opportunities to cut costs and use this angle to try to persuade me that there was upside potential. Something that I was already sold on. He explained that his company was ready to pull up stakes in the area and wanted to make a deal soon, so they could redeploy the proceeds to another project that they had lined up. He encouraged me to look beyond the numbers, which were ugly. As it turned out, the seller didn’t know the half of it. Things were worse than either of us could have imagined. Since the property was local, I asked around. Eventually, I tracked down some of the contractors who were routinely doing work there, one of which I had an excellent relationship with.
It was a painting contractor who gave me the first clue as to what was really going on at River Apartments. And it was shocking. What a mess this project was. Why did I like this property again? It was about to become a lot harder to remember. To be continued.

Speaker 3:
You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing, without all the hype, you’re in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.