How to Change Your Life with ONE Small Multifamily Property

Tony:
If you are a brand new investor who’s stuck at the starting line or even maybe a more experienced investor wondering what your next move is, you’re in for a treat today because we’re asking kind of a simple but powerful question. What would Ashley care do if she had to start over right now? No properties, no connections, just the knowledge that she has today.

Ashley:
Yeah, it’s kind of a fun thing to think about this little experiment of starting over and what I do, and even though Tony and I get shiny object syndrome by talking to new investors every week, I can honestly say that I would still start with a small multifamily.

Tony:
And today we’re digging into exactly why small multifamily still makes maybe the most sense in today’s market for Ricks. And Ashley’s going to give a step-by-step playbook of what she would do if she had to build her portfolio over from the ground up.

Ashley:
So I think we should talk about getting into how to find deals, what kind of loan products are available to start with, and how I would build my team starting at day one. But don’t worry, I’ve made enough rookie mistakes for the both of us, so I’ll share what I’d avoid this time around too. This is the Real Estate Rookie podcast, and I’m Ashley Care.

Tony:
And I’m Tony j Robinson. And with that, let’s get into Ashley starting all over. So I guess maybe the best place for us to start, why is small multifamily maybe the best entry point right now for Ricks?

Ashley:
There’s less competition. Okay, so there’s more competition going after single family homes as you’re competing against investors and primary homeowners for the larger multifamily, you’re getting into commercial investments there where you’re running into syndications and you need a lot more money for a larger multifamily. So I really like the sweet spot between two to six units for small multifamily, two to four units is residential, anything over four units is commercial. So with that being said, I think that there’s less competition in this area. There’s not as many people looking to buy these types of properties, and that’s where you can have a huge advantage. But also there is great financing that you can get for these, especially the two to four units being if it is going to be your primary residents too.

Tony:
I think for a lot of rookies, Ashley, the idea of buying multiple units at once can feel maybe a little intimidating. So you’ve done a lot of different types of investing. How does the learning curve for small multifamily compare to flipping houses or burying a property?

Ashley:
And I think that depends on how much risk you’re taking on. If you are purchasing a four unit and you know that you need to consistently have all three units rented and you’re going to live in one unit, because if all three are vacant, two are vacant and you can’t afford the mortgage payment, that’s definitely more risk. But if you go into this saying that I can actually afford the mortgage payment, I don’t want to because I’m trying to lower my cost of living, I’m trying to live for free, I’m trying to save capital for the next deal, living below my means you have less risk. So you have that opportunity to go in this property. Worst case scenario, you have to make the full mortgage payment because you have a vacancy or you have a tenant that’s not paying. And if you find a property that’s somewhat close to what you could actually afford to pay from the income of your W2 income, or if you went and bought a single family house, this is what you could afford.
But instead buying the duplex, buying the triplex where for many months your mortgage payment is made by the tenants or a large majority of it. And so instead of going and buying that big house, you’re scaling down by living in one of the units an apartment, but it could be the same price as to what you could afford for a single family. So depending on what type of risk you’re willing to take on, this can be a lot safer investment as a new investor because you have those tenants covering the overhead of your property. But also if you do have something happen where you are not getting that rental income coming in, it won’t be catastrophic because you don’t have your own mortgage payment. This is your only mortgage payment and you’re able to cover it.

Tony:
I definitely want to touch on house hacking with small multifamily, but I guess just from a education perspective, do you feel that small multifamily is harder for a Ricky to grasp than flipping houses different skill sets, but do you feel that it would be harder for someone who’s just getting started?

Ashley:
No, I think the nice thing about flipping houses is you have to deal with contractors and things like that, but once the deal is done, the deal is done and you move on. But if you’re going to be a landlord, you’re going to be a property manager, you’re getting a property for a long period of time, you do have the option to sell the property. But usually if you want to make some money, you’re holding onto the property for longer than a year at least where property, if you’re flipping it, it’s one and done. So if you’re making mistakes, this property is not working out for you. Your end goal was to sell the property anyways. But with being a landlord and having small multifamily, whether you’re house hacking or you’re just renting out all of the units, you do have to learn that that is an operation piece.
So it is not truly passive, but it is definitely something that you can achieve. You can hire a property management company, you could hire someone to actually be your manager. You can also do self-management yourself by putting the right systems and in place. So you do have many options as to what type of landlord you want to be and how much you want to outsource. You can outsource the bookkeeping but handle everything else. You can get a VA to do the communication but handle everything else. So there’s that really nice aspect where you can pick and choose what type of operations you want to do. So for real, as I had said, managing tenants can sometimes feel like a lot of work, but it doesn’t have to be. And for me, it all changed when I found Turbo Tenant. There are free software that makes managing rentals super easy.
I used to waste so much time on paperwork and chasing down rent. Now with Turbo Tenant, I have everything in one place. They even have state specific leases, digital condition reports, and a simple way to schedule showings without all the back and forth. Their automated rent collection saves me so many hours every month and their maintenance management keeps me organized. Everything’s in one place on your phone, so you can be a landlord from anywhere. I’m actually good at managing rentals now, not just finding deals. So check it out at turbo tenant.com/biggerpockets and create your free account today.

Tony:
You make so many good points. Ash, I think what it really comes down to is that every strategy takes a certain level of education and building of your confidence and small multifamily, although slightly different than other strategies, it’s not something that’s out of reach. I think even for the Ricky investors that are listening. But I want to go back to the point you made about house hacking, right? I guess you could technically do a live-in flip, so you’re kind of house hacking, right? But small multifamily is unique because it is one of the best vehicles for house hacking. So I guess can you explain the benefits both in terms of the cash upfront and reducing your own expenses that come along with house hacking, small multifamily?

Ashley:
Yeah, so first of all, it’s going to be your primary residence, so you get the great financing terms of primary residence if it’s four units or less. If you’re going to the five or six, you’ll have to get commercial lending on that and you won’t get the benefits of this aspect of house hacking, the financing piece of it. So you’ll get your lower interest rate than you would if it was an investment property. You can get 30 year fixed, a low down payment if you’re using an FHA loan or even 5% down using conventional loan. Tony, you’ve mentioned the N loan before. I don’t know, can you use that for small multifamily? Is that only single family?

Tony:
Yeah, up to four units.

Ashley:
I looked at the USDA loan and that one appears to, that’s also 0% down, but that appears to only be for single family and then of course in rural areas. But the VA loan too, you can use the VA loan for small multifamily also. So that first piece right there is the benefits of the financing that me as an investor going to buy rental property that I’m not going to live in. I am not getting those grade of terms and that grade of financing. So you do have an opportunity to maybe make a better offer on the property or offer more because you’re not putting as much money down as someone else may have to if they’re having to come up with 20 or 25% too. If you’re getting a lower interest rate, you may be able to pay a little bit more, so your offer may be better.
There is the downside that some sellers look at, oh, they’re doing an FHA loan or they’re doing a VA loan where there are inspections that happen outside of your traditional home inspection to actually move the loan along where someone will say, you know what? I don’t want to deal with that, but the conventional loan is 5% down. So just putting that little bit extra down, going conventional, you can avoid those inspections and still put in a great offer. So I think that financing piece is a really huge benefit right there. But as Tony said, it’s not really a live and flip, but you can treat this property like a live and flip. You can live in one unit, rent out the other units. I think in a perfect scenario in my head, you are purchasing a property that has one vacant unit and then there’s one that has somebody in it.
You move into the property and if it’s going to be your primary residence, the bank is going to require you to move in within a certain amount of time anyways, so you’re moving into that vacant unit and you’re going to remodel it while you live in there. Then you’re going to offer the tenants that live in your other units say, Hey, you can move into this brand new unit I just renovated for X amount of money or unfortunately, then you can say that, I’m sorry, I’m not going to renew your lease and I’m going to renovate the property when it comes up time for the lease renewal. And then you move into the second property and you live in that one and renovate it and list the brand new one for rent and get someone in there that’s paying a really nice high rent for that one because it’s completely renovated.
Then year two comes along, you’ve renovated both units, and now you can sell the property and get the tax-free gains. You have two beautifully redone units, so you got to live in the property for very low amount of money that, for example, my sister, she house hacks a duplex and she was paying when she first bought it, $45 a month towards her mortgage payment, which included her insurance and her property taxes. And if she would’ve rented in that same area, very similar unit, she would’ve been paying about $900 a month. So she was saving about $850 a month by purchasing this property and living in it. So you do that two year mark and then you have this property renovated, you go and sell the property and now you have this influx of that is tax free. And sometimes if you get the right market, you get appreciation, you’re getting your mortgage paid down, you’re getting that equity from your tenants paying down your mortgage, you get appreciation. You could actually walk away with a really nice size chunk of money. The IRS does have limitations that you can’t go over that if you’re a couple married couple, you can’t do over. I think it’s, is it 500,000 or a million? Tony, do you know offhand?

Tony:
I’m not sure.

Ashley:
But there’s limitations as to how much is tax free from the sale of a home. So think about can you actually make that money? How easy is it for you to live somewhere and make money just renovating something, making that tax-free money over the course of two years. But then you also have the option to keep that property as a rental. You’ve already got the nice long-term financing on it. If you do have an FHA loan or a VA loan, you will most of the time have to refinance out of those loan products if you want to use that same loan and product. Again, there are some exceptions, and I always love the people who comment in the YouTube video and tell me what those exceptions are because I never remember them. So please, if you know what they are, please, I would love it if you would add them in the comment section.
So if someone really is wondering what the exceptions are, you can put ’em in. I know one is relocating for your job or things like that, you can actually leave the property early and not live there for the two year requirement. But yeah, so I think one of the best things is that you have an opportunity to go along those two paths and when you’re at the two year mark, you can sit and you can evaluate, does this make sense to keep as a rental? Literally run the numbers over the next five years as to what your cashflow is going to be, what CapEx improvements are you going to have to make over the next five years, and does that just completely wipe out your cash flow anyways? And what do you expect the property to be valued at in five years if you were to sell it? Then also look at, okay, if I sell this property now I’m getting this money tax free, what can I do with that money?

Tony:
Yeah, you touched on so many great things, Ash, right? So first, the learning curve for small multifamily is not much more complicated than any of the other strategies we talk about on the Ricky Podcast, right? It is just more units under one roof. You get the ability to house hack in a way that’s a little bit more comfortable than co-living. And then you also, especially if you house hacking, gets to a significant reducer, your cost to acquire the property as well as significantly reduce your monthly living expenses. So I can see why small multifamily is such a big part of your portfolio and why it does make sense for so many rookies today. And I think now that we’ve got a good sense of why multifamily is such a great option for Ricks, I want you actually to break down what you would do today if you were starting over, how would you rebuild your small multifamily portfolio from scratch if you were starting over today? But first, we’re going to take a quick break to hear a word from today’s show sponsors. Alright guys, welcome back. Well, now we know why multifamily is such an attractive option for Ricky Investors, but let’s kind of get into the weed of it here, right? The nitty gritty here. So I want to know actually, what would you do if you were starting over say, but I guess before I even get into that, just one question. Do you think it’s easier to scale your portfolio with small multifamily than it is with single family? And if so, why?

Ashley:
I do think it is easier to scale because you are getting the four units, three units with one loan product, and you’re doing that acquisition process once for those three units compared to buying three separate single family homes. So just the time that is put into the acquisition of a property, it is easier to buy those three units at once in a triplex than to go out and buy three individual single family homes where you’re completing a transaction for each of them you’re having to do at three different times, whereas the triplex, you’re doing it one time. So even just that initial step of acquiring the property is an easier barrier to entry than buying three separate single family homes.

Tony:
And I get why so many investors as they mature, they start to graduate into larger properties because once you, and I’ll say this, I don’t mean for this to come across in a negative way, but looks like once you bang your head against the wall enough times with a single family home, you start to identify the benefits of having multiple units under one roof. And for us, we’ve purchased lots of single family Airbnbs. We bought our first and our first hotel last year, and even though we have 13 rooms in this hotel, essentially 13 separate small little studio Airbnbs management is so much easier on that one 13 unit than it is for the equivalent of 13 separate single family homes that I manage. And just as I think about the architecture of my portfolio moving forward, the idea of multiple units, underrun roof is so much more attractive because there’s so many benefits that come with that.

Ashley:
Tony, that’s so funny because on the management piece, I actually think the opposite. So I think that as far as tenant management, and I think that it is so much easier for the properties that I have that are single family homes, it is, they care more about it because it’s just them. It seems there’s a lot less, I would say maintenance and repairs or issues with the single family homes because they take a kind of ownership that is their property that they’re living in. Also too, with the single family home, you can have the tenant pay a lot of the things that you would have to include for a multifamily, such as if it’s just one person or one family living in the single family home, it’s easy to say in the lease agreement, you’re in charge for the lawn care, you’re in charge for snow removal, things like that where if it’s a duplex and it’s a shared driveway, a shared yard, it’s not as easy to say that.
So you’re paying those costs and think about when you’re purchasing a property, what are those shared things? Having a cleaner, common clean, a common area can get really expensive. And having tenants that come in and out and not caring about if their boots are muddy, it’s not their place. They take their boots off before they get to their apartment, but they don’t care if they do it up and down the hall because that shared with the other tenants. So that is a whole aspect that I would prefer a single family is that management piece. But as far as getting vendors in place to do the lawn care, if the snowplowing or plumber, things like that definitely is a lot nicer. Having one roof where you’re just paying for a driver to go to one property instead of three different properties, that obviously cuts down a lot on your overhead for your expenses that way too.

Tony:
You’re absolutely right. I think the different asset classes, right, because you’re doing traditional long-term rental, I’m doing short-term and for me, my guests don’t care about the place, whether it’s a single family or a hotel, they’re going to treat it like it’s not theirs. So I think for us, the benefit that we got was honestly was the onsite management. That was a big thing for us was with 13 units all under one roof, we could afford to have someone who’s there full time, and that really does cut down on our contracting expenses. We’re not paying as many cleaners to come through. They can handle a lot of the small issues that come up and just the oversight is so tight. So yeah, I think it probably does actually, I think very little bit depending on the strategy. But I want to go back to you starting from scratch. So if you were starting today, and again, you’ve got no connections, you’re not Ashley Care co-host of the Real Estate Rookie podcast, you’re just Ashley,

Ashley:
Which was how I started. I didn’t even know what BiggerPockets, I didn’t know. I knew the guy that I worked for and he really didn’t know that much about real estate. He worked in another industry.

Tony:
So no connections, right? None of your current properties. What would you look for in that first small multifamily? What price range, what kind of location, what unit mix are you looking at?

Ashley:
Honestly, I think I would do it the same way that I started before I went for a duplex, but honestly, I wasn’t specifically looking for duplex. I was looking at single family two really small, and that’s what I ended up with. The duplex was I wanted a really small, manageable property. So this duplex was, I think each unit was probably 600 square feet and it was a downstairs unit, an upstairs unit, and I did want something at the time that had a tenant in it so that I was getting rent from day one. So with this property, there was a tenant living in the downstairs, and then in the upstairs there was room for some value add, but not walls gutted. It was just we replaced the bathroom floor, just put in some vinyl plank, the kitchen, we put in some vinyl plank in the kitchen and we actually replaced the kitchen cabinets, which it was such a small kitchen that we just did the Lowe’s stock, hickory cabinets, and then we painted it.
And one of the reasons we felt comfortable with doing this amount of rehab was we weren’t ripping apart walls, we weren’t getting into the plumbing, taking out the bathtub, anything like that. So it was really comfortable for us just doing these minor upgrades to the apartment, and we actually hired my partner on the deal, his roommate, to actually install the floor and to put the kitchen cabinets in. When we went and looked at the deal and purchased ’em, we did not have anyone lined up. And that was kind of like, oh, we’ll be able to get someone like that’s not an issue. That is one thing I wish I would’ve done ahead of time. The roommate did a great job, but that just happened to fall in our lap that he was available and he did this as a side job for us. So I think I would’ve planned better as to, okay, who are my contractors that I want to use? Are they available when I close on this property so I can get that other unit rented as quickly as possible? But I would say stay away from large full gut rehabs or lots of issues for your first deal, just do something that needs cosmetic updating. It has good bones.

Tony:
So looking actually basically for something that from a renovation standpoint isn’t too much of a lift, which I think makes ton of sense, right? We’ve seen both in folks we’ve interviewed on the podcast and elsewhere where they may be bought off a little bit more than they can chew with that first rehab. So I love that approach. So you’ve kind of got your buy box in terms of what it is you’re looking for, but I guess in terms of actually finding those deals, are you just going to go straight to Zillow? Are you going to maybe network with commercial brokers? Are you working with wholesalers? What do you feel would be the route you would go down and actually find that deal today?

Ashley:
I thought it was so beneficial for me to use an agent for my first deal. That is one thing I highly would recommend if you’ve never gone through the process of purchasing a property before is using an agent. And my first deal, I did find on the MLS right now today, if I was looking for a deal first, I would tell anyone and everyone that you’re looking for property. So I just bought a house from my dad’s best friend just because he knows that I buy houses. And he approached me two years ago and we just closed on it. There’s been a two years in the works. So I think just word of mouth, but you should not completely rely on that, but that will be a way to get really great deals without having to go on the market. Then building out your buy box, putting together what your buy box is, we have a resource at biggerpockets.com/rookie resource, and it’s a template to build your buy box out.
Once you have that done, you can use the filters, you can sort through all of the MLS listings so much faster, but you can also give it to your agent so that your agent knows, okay, these are the deals that Ashley is interested. This one I think really would be something she would like. It fits her buy box. I’m going to send it to her also too that you can get the automated emails sent to you. Next is direct mail. So even if you don’t want to pay to have 500 mailers sent out to an area, you can use the Driving for Dollars app from reim. You can pinpoint addresses as you’re driving through, pull up their mailing address off their tax record and send a handwritten note. Print a letter maillet, ask if you’re interested, but you need to really define your buy box to be able to do that without wasting your time.
And then of course on stream, I do love filtering the list. So selecting, okay, what homes are the people that are living there on the verge of bankruptcy or that their taxes are passed due on the property? And you can go through and niche down your filters that way to get a list of people or people who have high equity in their home, maybe I can get them to do seller financing on their property. But always, always, always just be telling people what you’re trying to do and always just saying, Hey, if you ever want to sell, let me know. Stay in touch. You never know when someone’s going to want to move to Florida and live there, live the rest of their life out there in the warm weather.

Tony:
I think the biggest thing that I see Ricky’s get wrong when it comes to finding deals is that they think that they can just look at any property in the MLS and there’s just going to be this plethora of amazing opportunities. But a lot of times you have to manufacture that deal. And what I mean by that is just because a property is listed at some price doesn’t mean that that’s the only price that the seller’s willing to take. And unless you’re willing to have conversations and negotiate and analyze deals and make offers, you won’t always know how flexible that seller is on the potential pricing regardless of where it’s coming from, whether it’s CMLS, whether it’s off market, whether it’s working with an agent. So just know you got to put in the work and I think have those conversations to find those good deals. But BiggerPockets actually just launched a new tool to help rookies and really real estate investors of all types more easily and more quickly find a good deal. So if you head over to biggerpockets.com/listings, you’ll see a new tool that we put together that works very similar to a lot of the sites you’re familiar with, but it shows all of the critical information that we as investors need both income expenses and profitability,

Ashley:
All the calculations for you, so you don’t even have to do your own math,

Tony:
All the calculations. Yeah. So it really is an amazing tool. So again, if you head over to biggerpockets.com/listings, you’ll see that tool there.

Ashley:
I have played around with it and it is incredible. You look at the MLS listing, and usually if I see a property I’m in said I open up the BiggerPockets calculator report and I’m filling in all the information, it will pull some of the information from Zillow, but then I’m going through and calculating a lot of the data that I want to know and the percentages and the ratios where it just literally shows you right in the listing as to what your estimated rent is, what the estimated cash cashflow is based off the expenses. And it truly is incredible, and I think it’s going to be a big game changer how fast investors can actually make offers on deals because they have this information right in front of them now that they can actually sort through deals faster and faster.

Tony:
So Ashley, let’s say that we find an amazing small multifamily, whether it’s from the agent, from the wholesaler, from the BiggerPockets listenings tool. How do I know if it’s actually a good deal? How do you go about analyzing small multifamily to know if it’s actually a good deal or not? What are the big things we should be looking at?

Ashley:
Yeah, so I think you got to know your why. What is a good deal for you? So do you care about cashflow right now because you want to quit your W2 job? Do you care about appreciation because you’re going to hold this property for 20 years and it’s going to be your retirement nest egg when you sell it? So I think you really have to know your why and what you want out of this investment. So is that you’d want this to be as passive as possible, is this, you want to put a ton of sweat equity into it so you’re maximizing your return because there’s definitely that balance of how much time and effort you’re putting into the property as to what your return your output is going to be if done correctly. Obviously you can put a time and effort into a deal, but you just don’t do it correctly or something happens and the deal flops, but most of the time, the more passive the deal, the less return you’re going to get.
So you kind of need to understand what makes a good deal to you, because what makes a good deal to me right now is not going to make a good deal to Tony right now, completely different as to what a good deal is. So let’s look at cashflow for a property. If you’re going to be house hacking the property, what amount of the mortgage being paid for is comfortable for you. A couple of years ago, like 2020, even when we first started this podcast, we would have guests on that. I’m living for free off house hacking. That is not as common anymore, and it is harder to find guests that are actually saying, I’m house hacking and I pay zero. I’m having somebody pay all of my mortgage, all of my utilities, all of the toilet paper supply I put into the house. And that’s why I think co-living has become bigger because you are renting by the room instead of the house hacking in a sense of renting out different units and things like that where it makes sense that way.
But I think that’s a big thing as far as when you’re looking at an investment, what are you comfortable with? Because this is going to be your own property too that you’re living in. Like me, I said before, I just like to be home and be alone, and I don’t really like to talk to people that much. As much as that may seem hard to believe, I don’t think that I could come home from a long day of, I don’t know, doing what and have to have small talk with someone in the living room or kitchen because they’re making a meal the same time that I want to make a meal. So I think you really have to think of those personal choices too. As much as we like to say, don’t make the deal emotional. If it is going to be your primary residence and you end up hating your life and do not like your living circumstances, but it’s a great cashflow and a tremendous deal, but you are in a horrible neighborhood where you’re scared for your life every day, maybe that return, that cashflow, that money is not worth it because your quality of life has just decreased significantly.
So once you figure out all that stuff or whatever, focus on the numbers and figure out why haven’t you made an offer on a deal? Because when you’re running the numbers, you can find all the numbers or a really good estimate of them. The easiest number to manipulate is not the rental income by figuring out ways to increase the rental value or what’s the max you could actually charge to make your deal work. It’s the purchase price. Just because the asking prices this much does not mean that is the purchase price. And Scott Trench did a video of this on the BiggerPockets OG channel talking about days on. So go right now, pull up the market you want to invest in. Look back at properties that sold, and then scroll down to where it shows the days on market, the days pending. So for example, in New York, it can take three months to close on a property.
So just because a property closed today, that offer was probably made three months ago. So it’s not really comparable as to what somebody is paying right now in the spring market for a property, but also look at how long those properties are sitting, how long are they staying? I just saw an article in the New York Times that was, or the New York Post, and it talked about the cities where properties are selling the fastest. So the lowest days on market was 13 days on average, and that was Rochester, New York number two, whereas on my Buffalo Bills fan, bills mafia was Buffalo, New York. Okay? So there was actually in the top 10, there were four cities that actually were in New York that had the fastest selling days on market. I read the article quickly, it really did not explain why. It said part of the reason they think is because it’s lower cost of entry that there was all of this industrialization, and then it became the Rust Belt, and now people are moving back there because of the opportunity there.
Where then the article went on to mention the Sunbelt and specifically Fort Lauderdale in Austin, Texas, how they’re seeing a really high days on market where properties aren’t selling as fast too on the property. So looking at those days on market, because if properties are sitting for a long time, you have more of an opportunity to make a lower offer because most often those people are more motivated to sell the property. And when you are looking at what properties sold for, go and look at what the asking price is. So you can look and see, and I know there are some states that don’t actually disclose what the property sold for. So sorry, this won’t relate to you, but you can go and look and you can see, okay, this property sold for 200,000. They had it listed at 280,000, but they ended up letting it go for 200,000. So look to see if there are those discrepancies between the asking price and what the actual purchase price is. So an even better amount of what deals are actually going for in your area.

Tony:
So many things to consider as you’re analyzing and thinking about what deal makes a good deal. But again, we talk about this a lot and I love that you highlighted this ash, but just knowing what your ultimate goals are, right? If you’re buying this as just a true investment, what is it that’s motivating you, right? Is it cashflow? Is it tax benefits? Is it depreciation? If you’re buying, it’s a house hack, how much are you willing to, are you hoping to spend out of pocket or reduce your living expenses by? So yeah, there’s multiple layers there, but I think at the end of the day, it really comes down to any other deal relying on the numbers. It’s like, what do I actually think that these units can rent out for? What are all of the expenses that I think might go into this? Then what’s the net profit at the end?
And we plugged a few BP tools, but I think that’s why the calculators are so important, especially for rookies, because it forces you to really account for a lot of those things that maybe you would’ve forgotten otherwise. It’s like your closing costs. I’ve seen some people who just say, Hey, my down payment is this and they forget, oh yeah, I’ve forgot to put an extra one to 3% to cover my closing costs. You always talk about snowplowing, it’s septic inspections, there’s different things that pop up. So just making sure that we account for all of those things.

Ashley:
And I think too, if there is something you’re not confident in a number or even several numbers, what does someone charge for snow plowing? Maybe you live in Florida and you’re investing in Buffalo and you like, I don’t even know what to even estimate for that, go to the BiggerPockets forums, go to the real estate rookie Facebook page and literally type in, I am looking to invest in Buffalo, New York. I am looking at properties with a driveway that’s just two cars could fit in about approximately that size. What do you guys pay for snowplowing? And you will get responses. You will get people that’ll tell you or search contractors in those areas and just call them and say, Hey, I’m just kind of getting an idea of what you would charge to plow a driveway that’s this size, whatever. You can go on Google satellite view.
You can use the little measurement tool to measure out the size of the driveway to get an accurate, I get estimate that you can ask people, but you have to do the work. If you don’t know, don’t just continue to guess and then not make offers because you don’t feel confident in your numbers. Do the work of actually finding out what that number is. And it may take phone calls, it may take emails, it may take putting yourself out there. We had somebody put in the BiggerPockets forums like, please do not call me dumb. Please do not say that I don’t know anything about real estate. I’ve done one deal, but yes, I’m still trying to learn. Please don’t make fun of me. And every single comment was so supportive of Be open, this is what everybody is here for, and things like that. It was really great to see that kind of community within BiggerPockets, but don’t be afraid to ask questions.

Tony:
Asha, I want to get into the management. We talked about it a little bit already, but there’s a couple more things I want to hit because obviously managing multiple units under one roof is slightly different, as you mentioned, than one single family home. But before we get into that, we’re going to take our final break. Alright, we’re back. And Ashley’s been giving us a masterclass on small multifamily, and I feel like I’ve never done small multifamily, but I feel like you got me drinking the Kool-Aid a little bit here right now. Ash,

Ashley:
It’s recession proof investing.

Tony:
There you go. I love that. So you talked about some of the challenges already, right? It’s like the common areas having to play police and mediate between your tenants. But I guess maybe what are the most common mistakes that you see people make when it comes to managing small multifamily?

Ashley:
This is good. I like this better that it’s more specific to the management because I have so many lessons learned. The first one is not using property management software. Having that tool, that software, I started working as a property manager manager and everything was pen and paper and it was so much work, so much work. And so once I switched to property management software, that onboarding piece, definitely there is some work, but now a lot of the property management software companies offer onboarding services. Some you pay for, some are free where they assist you with getting all of your information onboarded, but also shows it’s so much easier to start when you get your first rentals, just add your first rental instead of waiting until you have 20 units and then adding them all at once to the software. But using those tools like electron lease agreements, rent collection, anything that is going to help you manage these properties remotely is going to be a huge advantage to you.
I used to have to go to a Dropbox and pick up rent checks. Now I get to stay home and I honestly don’t even know if people have paid or not. I get the emails or whatever, but I don’t check. I just look at my VA sends me a report on the fifth of the month, here’s the people that didn’t pay. Here’s the delinquencies and these are the notices that are going out so I don’t have to do anything for rent. And that makes it so much more passive unless of course they don’t pay. But the next thing leads into that, that I would say as first property management software. The second thing is set the rules in your lease agreement and stick to it. So if you have to, you say you pay by the fifth, late fees start to accrue after that charge those late fees.
If somebody gets behind in rent, go through your process. What is your process to evict someone? New York state? You have to do all these things. And we have an attorney that does it for us where they send the notice, then they file the judgment, then there’s the court and then it goes through. And it does take a long time, but we have learned you have to be really diligent because once you let it slide once that it can become a repeated pattern or it can get so far behind that all of a sudden they owe you $6,000 and you can’t believe that three months have already gone by and they kept promising they would pay and they didn’t. So being really diligent about keeping on top of it, because this is your livelihood, this is your business, and yes, someone has made this property their home, but it is not fair to you that you now have to pay out of pocket to cover the mortgage payment and the other expenses so they can live there for free.
So be diligent. I will have to say that I have a lot of, I am a lot more willing to negotiate a payment plan or different things like that when the tenant comes to me and they come to me before the rent is even due and they say, I’ve never paid rent before. I am going to be late this month. I will pay the late fee. I just want to let you know. And I have so much more respect for them for being proactive. So I do have this mentor of mine, Steve Rosenberg, he had a property management company for a long time, and he did tell me with this though, you have to be careful that you not violating fair housing laws because if you do something for one tenant, you may be required to do it for all of your tenants. So really take that into consideration when you are making these special circumstances if you do as to how broad are they that you have to offer that same thing to somebody else too.

Tony:
Yeah, there’s again, nuance I think with every strategy, but I think calling out those things, especially the expectation and the consistency around the lease, I think that’s just good with any strategy or any type of investing really, whether it’s with your guests, with your tenants, with your contractors, having super clear expectations and then sticking to those expectations, make sure that your business runs smoothly. And I think it’s when we stray away from the things that we know to be true and to be best for our business, that’s when we tend to get ourselves in trouble.

Ashley:
Yeah, I think the last piece I would add on to that is having a communication log. So logging every interaction. I was just sued by a tenant for the first time ever. I evicted him, he owes me $5,000 and he took me to small claims court for his security deposit, even though I had already paid him his security deposit plus an amount of cash for keys just to get him out of the property. So we actually, we were in the eviction process with court dates and everything, and he accepted the cash for keys term and moved out and then sued me even though he had already received his deposit, I was saved because of all of the documentation I had. It was such an easy thing that I literally had every time he communicated with us every time, he didn’t communicate back to us. Every single thing was in our property management software in a log and activity log.
I kept every single email, every single document, and it showed this is the history of this resident. This is what’s happening. This is where we specifically call out. This is where the other judge said that, yes, you’re doing the cash for key terms and signed the agreement that he was getting his security deposit back. So I think if any issues do come up, whether it’s your fault or not, having all of that documentation can really save you so many headaches of having to go back. If I didn’t save anything, this guy probably could have had a case of like, yeah, Ashley, what’s your proof? What are you going to show? So that saves you so much of having to try to dig around and time wasted for whatever the circumstance may be is keeping that really clear communication log. And sometimes you can put something to bed just by resending. There was a couple times that with, when we had a property management company, I would only communicate in email so that everything for certain hot issues or whatever, I wouldn’t do anything over the phone because I wanted everything in writing. And that was to our huge benefit of having everything in writing to be able to send and say on this date, this is what was said and this is what we’re going with or whatever. And having that proof that that person did communicate that at one point too.

Tony:
Yeah, covering your CYA is what we call it. My old W2 is make sure you get everything in writing. Well, actually, you did a phenomenal job of breaking down multifamily, why it still makes sense and why so many rookies should be going after it. And like I said, I’ve never done small multifamily. I’ve done single family long-term rentals, and obviously the single family Airbnbs the hotel. But I think there is something to be said about that small multifamily because there is less competition there. And actually just last thought, we talk about affordability being a challenge right now for many Americans, and I think it was thatch wind who built these micro apartments. So he took small multifamily and made it smaller but bigger. There were a lot of units, but each, and it was really small. And I just wonder if there’s something to be had there. So anyway, it’s a win-win with small multifamily because you’re giving affordable housing to folks, you need it, but she was the investor also capitalizing on the upside. So maybe something more folks should be doing. So you for walking us through that today, Ash.

Ashley:
Yeah, and I think too, you could even look at small motels. People are turning them in boutique motels, but you can turn them into efficiency apartments too pretty easily. They have the bathroom you put in a little kitchen at too to make really small studio units, but that’s kind of another way to use another property type. And I’ve seen schools, my uncle actually did this. He took a school, now, this wasn’t small multifamily, I think they did like 60 units, but he took an old school and he turned it into a multifamily property by turning the old classrooms into rooms. And the old gym became the community center there. And you could take fitness classes, things like that. So I think with multifamily, there’s a lot of other property types that can actually be converted into multifamily. Well, Tony, thank you so much for having me on your show today on the Real Estate Rookie Podcast.

Tony:
My pleasure.

Ashley:
I did create a cool worksheet, a checklist for you guys. It’s a property walkthrough. So when you are going out and looking at these small multifamily properties or really any type of property, I made this whole document of everything you should be looking at and checking when you’re going through the property, especially if you have no experience in construction at all, kind of an idea of here’s the things that you should be looking at. It’s also, you could go through this list with an inspector too, but you can go to biggerpockets.com/rookie resource and look for the property walkthrough checklist. I’m Ashley. And he’s Tony. Thank you guys so much for joining us today on the Real Estate Rookie Podcast.