The Tony Stephan Show · Episode #004
Buying A 9 Unit Apartment With 5.5% Seller Financing
Keith runs a roofing business, and he and his wife Angela spent about two years learning about multifamily before they bought. He says they are approaching the age where they want to speed up retirement, and a serious illness during COVID pushed them to move faster. After one of Tony's masterminds, where they met other clients like Hugo, they closed their first deal.
It is a 9 unit in Clarkston, Michigan, bought for $1.2 million with seller financing at 5.5%, a five year term and a 30 year amortization. A Stephan Group agent listed it, and it drew several offers in the first weekend. The seller had owned it for 11 years, used it as a second home on the lake and knew the residents by name. The roof and other major items were already done.
The upside is operations. A third party manager was running it, and rents range from $650 to $975 against a market of about $1,100 to $1,300. Tony shows how $200 more per unit at a 6% cap rate adds about $360,000 of value. They also cover renewals, move in baskets, running nine units like 9,000, and how Tony decides whether to hold or trade up.
Watch the full episode · Watch on YouTube
Key takeaways
- Seller financing is rare. Here it came from a retiring owner who did not want to sell for cash, and it came in about two points below bank rates.
- Third party management is a signal: expenses, vacancy and turn costs are usually too high, which leaves room for a better operator.
- $200 more per unit on 9 units is $21,600 a year of NOI, worth about $360,000 at a 6% cap rate.
- The best first BRRRR deals have the major CapEx already done, so the value comes from management, not construction.
- Once rents reach market, keep the heads in the beds. Price renewals just below market, because a move out costs more than a small increase earns.
- Run nine units like 9,000: set office hours, use a portal and an emergency line, and do not hand out your personal number.
Guest: Keith
Keith owns a roofing business in Metro Detroit. He and his wife Angela studied multifamily for about two years, attended one of Tony Stephan's masterminds and joined the mentorship. Their first deal is a 9 unit apartment in Clarkston, Michigan, bought with 5.5% seller financing through the Stephan Group.
Chapters
- 0:00 Intro
- 1:43 Why Real Estate
- 3:44 Attending a Mastermind
- 6:21 Commercial vs Residential
- 6:54 Finding the Deal
- 9:10 Details of the Deal
- 12:26 Taking Action
- 13:46 Tax Benefits
- 15:20 Terms of the Deal
- 16:18 The Inspection
- 17:54 CapEx
- 19:13 Renewals and Inflation
- 20:33 Real Estate vs Stocks
- 22:16 What's Next
- 23:11 Managing Tenants
- 24:49 The Gift Basket
- 25:42 Hold or Sell
- 29:03 Go For Your First Deal
- 30:31 Outro
FAQ
What were the seller financing terms on Keith's 9 unit?
A 5.5% interest rate with a five year term and a 30 year amortization. The seller had just sold a business, did not want to take the gains, and offered those terms himself. Keith says they tried to negotiate further and the seller would not move.
Why did Keith and Angela skip single family and duplexes?
Tony's view is that commercial multifamily is valued on NOI, the same way Keith's roofing business is valued on its profit. Keith says talking with Hugo at the mastermind made it feel achievable, and he treated the deal as an educated risk with a margin for error.
How much upside is in the rents?
The lowest rent was $650 and the highest $975. Andrea puts market at about $1,100 to $1,200 for a one bedroom and $1,200 to $1,300 for a two bedroom. Tony uses a conservative $200 per unit: $1,800 a month, $21,600 a year, which at a 6% cap rate is about $360,000 of value.
What is the renewal sign Tony mentions?
At their 42 unit, Andrea put a sign in the lobby that says to come sign a renewal and lists what it costs to move. Once rents are at market, keeping residents saves the vacancy, marketing and turnover costs of a move out.
When does Tony hold a property and when does he sell?
It depends on the business plan. Tony and Andrea look at every property each year. If they cannot grow the income further while expenses keep rising, or if someone offers a great price and they have a replacement lined up, they consider trading up. Ease of management also matters as a portfolio grows.
First 9 Unit Apartment With 5.5% Seller Financing
From consuming to closing
Tony opens with a point he makes often: many people consume content for years and never act. Keith is the opposite. He owns a roofing business, and he and his wife Angela spent about two years researching before they bought. He says they are at a stage where they want to speed up retirement, and getting very sick during COVID changed how they thought about time.
They attended one of Tony's masterminds, where they spent time with Hugo, another client who had bought from California. "If this guy can do it from California and he's making money, we can do it right in our backyard," Keith says. Tony connects it to the four minute mile: once people see someone do it, they believe it is possible.
The deal
The property is a 9 unit in Clarkston, Michigan, which Tony calls a great area. It was listed by Caleb, an agent at the Stephan Group, and drew several letters of intent in the first weekend. The price was $1.2 million. Keith and Angela skipped single family and small multifamily and went straight to a commercial property, the path Tony says he would take if he started over.
What made it stand out was the financing. Keith had learned at the mastermind how much a bank would ask of a first time multifamily buyer, and a bank loan would likely have been around 7.5%. This seller had just sold a business, did not want to take the gains and offered to carry the loan himself: 5.5% interest, a five year term and a 30 year amortization. "You hit the lottery," Tony says, and he asks viewers not to expect seller financing on every deal.
Where the value is
The property was run by a third party manager. "If you see third party management, you get so excited," Tony says, because expenses, vacancy and turn costs are usually too high. The unit mix is four one bedrooms, four two bedrooms and a studio. Rents ran from $650 to $975, while Andrea estimates market at $1,100 to $1,200 for a one bedroom and $1,200 to $1,300 for a two bedroom.
Tony runs a conservative version: $200 more per unit is $1,800 a month, $21,600 a year, which at a 6% cap rate is about $360,000 of new value, before any expense savings.
The inspection added confidence. Keith says the most expensive components had already been addressed, including a roof done within about two years. The seller owned the property for 11 years, used it as a second home on the lake and knew the residents by name. Tony calls it his favorite kind of BRRRR deal: pride of ownership, major CapEx done, and still meat on the bone. It reminds him of his and Andrea's first 7 unit, where they kept every resident after raising rents to just below market.
Keep the heads in the beds
Once rents are at market, you make your money on renewals, Tony says. At their 42 unit there is a sign in the lobby inviting residents to sign a renewal and showing what moving really costs. Andrea taught him that chasing $50 more can cost $3,000 in a unit turn.
Keith is learning that residents are a continuing relationship, not a one time customer. Andrea's advice is to set the structure from the start: a management portal, an emergency number, office hours and no personal phone number. Tony adds: run nine units like it is 9,000. Andrea also shares her move in baskets with water, soap, a dish towel and snacks.
What is next
Keith wants to run this property well for a full year before the next one. Angela's full time job means they cannot use real estate professional status yet, and their plan is for her to leave that job as the portfolio grows. Asked about holding or selling, Tony says it depends on the business plan; he looks at every property each year and trades up when the income has been maxed. Keith's advice to anyone on the fence: get in front of people who are doing it, and go to live events instead of only watching videos.
Transcript
0:00 How do you buy your first multifamily deal at a 5.5% seller finance rate where there's hundreds of thousands of dollars of value ad potential? That's what we're talking about in today's episode. Welcome back to the channel. My name is Tony Stephan. Together with my wife, Andrea, I own 258 multifamily rental properties. Today, we are bringing in one of our mentorship clients and Stephan Group real estate brokerage clients. Keith, him and his wife Angela just closed on their first 9-unit multifamily deal with a 5.5% seller finance interest rate. And this property has massive upside. They're going to do a massive BRRRR deal and create hundreds of thousands of dollars of valuation in this property. We're going to break it down so you can learn to do the same. Let's get into the video. All right, so Keith, man, appreciate you being here. You just completed your first deal, nine unit.
0:47 It's a beautiful property. I always say like the curb appeal is everything with real estate. It's a very cute property. Seller finance. I think you'll realize just like I didn't realize when I was getting 3% and 4% how good that is until like a year or two later. You're going to be like, "Oh my, it's kind it almost like makes it tough to buy anything else at 7 and 1 half or 7% when you when you get those low interest rates." So, man, you came to one of our masterminds a year ago. You sat there. You learned like you said you watched the YouTube. You watched the podcast. You worked with Andrea Suffing Group Real Estate Brokerage. And you did a deal. You're very rare because so many people consume and never go do. They are masters of getting information, but they're not masters of taking action. So, that's why we wanted to bring you in here today because for the person watching who is in consumption mode, you're so relatable to them because one year ago, you were exactly where they're at.
1:35 Now, you have a 9-unit seller financed, 5 1/2% interest. It's going to be a total home run deal. Let's just start off with it, man. Why real estate? Cuz you're a business owner. Why did you want to get into this? How did that get started? So, one thing that I've realized through this whole process, I mean, we've been looking for, it's been about two years now. We've been really diving into the understanding of why it's so important. I mean, our own property, we purchased it back in 2015. Anybody knows you purchased something at that point to where inflation has come to today. I mean, the amount of money that we're just sitting in equity right now, just in a single family home that we live in, right? I could only imagine what we would be doing with multifamily from 10 years ago. Oh my gosh. Right? We'd be retired right now, right? So, and that is the goal. I mean, I'm just approaching 50 right now and it's just like, well, how do we fast pace?
2:22 I mean, we're working our life away. Co time really changed the whole trajectory of the way we thought. It challenged us. You know, we got super sick and at that point, we were realizing we need to make a bigger move, faster move. And it was kind of like coincidental. It actually funneled right in by your father actually reaching out to me and saying, "Hey, they're selling some of their properties, their single family homes. Go take a look. I don't know if you remember this. So, you know, I went I said, "Well, you know, what do they do?" And he's telling me all about this whole avenue, you know, that you're starting to take. And I'm like, "Okay, this is like kind of almost meant to be. We've been talking about this. This is really weird." And I started just watching and researching you at that point. Then started going and checking out some of the properties and we realized at that point this is the direction was not just you. We're looking at other YouTubes and, you know, all the opportunity all these other people are making from multifamily and this could fast-pac our retirement and that was the whole key behind it.
3:14 We're on a short time span. I mean, you guys are young. I guess you can get in at any time, but you know, it's just like you just got to jump. And jumping into something we didn't know, we had to learn it. So, going to the mastermind, it taught us an immense amount of information, things that were a little bit more condensed right here locally. At that point, we were actually looking at a property while we were actually at that mastermind. And we were going to jump on something like that and we retracted. We didn't feel it was the right, you know, the right position. And this just fit. I mean, this property just fit. What about being in that mastermind? Was it like seeing other people who were doing it and just kind of like going from YouTube to like inperson bellyto belly breaking bread with people? Did that help make it a little bit more conceivable like well all right if they're doing it we can do it. We got to spend some time with Hugo and I'll tell you man I mean I love the guy to death.
4:03 We actually chitchat you know even still to this day. He's a great guy and listening. He was very new at that time, right? And he had just purchased I think that first property. I think he just sold it. Rolled it up. Recently just sold it. Sold it or rolled it up. Yeah. 1031. So even the language, right? Learning the language now it's becoming fluent to me and I'm becoming more normalized to it. But talking to him and knowing I mean, okay, you're from California. This is like wow. This is the perspective completely shifted. If this guy can do it from California and he's making money, we can do it right in our backyard. Get our feet wet. Let's start doing it. Let's just see. I mean, what's it going to hurt, right? Even went into this deal thinking we can't lose because we know what we're purchasing it for, right? And if we get it on a good price, there's other offers that were coming in. So, let's just say we jump into it. We put the money in.
4:48 It's better than it's sitting in. Actually, it was not sitting anywhere. It was just sitting, not getting any interest at all. So, we put it into this property and we looked at as let's say it just is not our thing. We can pull it out. We're actually going to make a little bit of a gain on, you know, another purchase. Somebody else would buy it a little bit more. So, we'll make the money on it. The risk is worth the reward. And now that we're in it's the best decision we ever made. I mean, I'm telling you, and I'm looking at some of the nightmares ahead of me. I'm still okay with it. 100%. No, I love that. I appreciate you sharing that. That's why we always push people. We say like sooner or later, if you really want to do this, you got to get around other people doing it, right? There's power in proximity. And we always say live events change lives. I'm a product of mentorship and live events. We'd every year go to live events for, you know, our first business and then real estate and all that. So, it's like really pushing you if you're at home and you're watching this like get out to an event, start to meet people because like he said, it was two years of investigating and learning live event seeing other people.
5:40 It makes it less scary because you get a real life example. That's why I appreciate you. You're now serving as a real life example for people watching this, right? You start to say, "It's relatable now. I see it and I can believe it." And humans just have to believe something's achievable and then they go on to like you probably heard the four-minute mile analogy. Roger Banister if they said the 4-minute mile was humanly impossible can't happen physiologically a human being cannot run a mile in four minutes Roger Banister goes out does a 4-minute mile the year later 100 or so people do it not because anything changed physiologically they didn't change they didn't get better shoes they saw someone do it they said I can now go do it that's the power of example so let's talk about this deal so you skipped the single family you skipped the duplex you skipped the four you went right to commercial if I could do it all over again that's what I would do because there's power.
6:28 Now you're playing the NOI game. So when Keith goes to refinance or appraise his property or sell his property, they're not going to say, "Well, what did the neighbor sell for?" They're going to say, "Keith, what's the NOI?" Like in your roofing business, how's your roofing business value? Based on our books, our numbers, I mean, that valuation is the profit, right? Yeah. Same thing with a apartment building. So you run a roofing business, you know, the more profitable I make the roofing business, the more valuable it is. Same thing with apartment building. So how did you guys find the deal? Got your broker here. How did you guys find the deal? And you know what attracted you to this 9-unit deal? Yeah, so actually it was brought to us from another agent on our team. Shout out Stephan Group Real Estate Brokerage Caleb finding deals. We're sourcing deals. We're trying to put deals in front of our clients, right? And Keith was a VIP client because he invested in being part of our circle.
7:15 He said, "Hey, put a deal in front of me and I'll close." And he did. So now moving forward, if you get another deal and Keith's in the market, Keith's going to get a first shot cuz he's a closer, right? Exactly. Yeah. I know I because we looked at another deal earlier in the year. Do you remember that year? I do remember. So we looked at that. So I knew you were actively looking. So I knew this was a good opportunity because of the seller financing. If you want to fill us in. What made it stand out to you? The biggest thing that made it stand out was knowing that going into a bank or credit union to get a loan on this would have been much more difficult not having the experience in this area. That I had learned from your mastermind and speaking with your banker at that time that was there. Oh yeah, we brought jealous. Yeah. So, and she's a pit bull. Oh, yeah. She's a pit bull. So, you know, she gave it to us real and that I mean that was the realization was like, you know, we have to provide all this information, you know, all Angela's information, all mine and it's just and then the length of time for the approval is timeconuming.
8:10 So, this seller financed deal it just like as soon as it hit it was cautionary still. We were like, man, this is like this is it. Sure. This is like a whole new direction. Do we do this? Do we not? All right. So, it just made sense. It fit. We know that the risk was with him and I mean at that rate the banks weren't paying this. So even if we got a loan with the bank we were going to be 7 and 12% right maybe even more because of the risk for you know for us being new. So yeah I think that's a really good point of just like having something under your belt to go back to the bank cuz we talked about that so much during the transaction of like your experience. This is going to go over so well with like your refinance or your next purchase because a lot of people go in and they don't have anything on their books of owning real estate especially now multifamily experience. So I think that's a huge point.
8:57 So our agent sourced the deal. He was able to offer seller finance because he just sold a business and he didn't want to liquidate. Yeah. Rare situation. Seller finance you have to find the right individual who's willing to offer terms. Let's get a little bit more into the details of the deal. So, can we talk about purchase price and like can we talk about value ad? Like what was the purchase price? What's the upside on the deal? Because obviously you're doing the bur strategy here. Yes. Right. You're not just buying a deal to park it. Absolutely. So, the purchase price was 1.2 million. That was for nine units. So, there's a lot of value ad to be to be had there. So, it was run by third parties. That was a huge thing. So, it was Yes. Oh my god. If you see third party management, you get so excited because you know they're just blowing up the expenses. Vacancy is too high. Unit turns are costing too much. Maintenance is too high.
9:43 So again, because we want to teach you at home like what to look for. So already like what's making this deal attractive? Was it was on market, right? It was on market. So our agent listed it, but there's seller financing being offered well below bank financing. Two points below bank financing and run by a third party manager. Correct. So if you guys see this, you're getting excited that right off the bat, the third party was like, "All right, we got to go for it." Yes. So, with your experience and your connections that you have, you'd be able to run this property. That's exactly what we've seen in this entire deal. I mean, we looked at the value ad and we looked at the rents. The rents were so low. We looked at the management company charges. I mean, as soon as you provided those numbers, we started doing our own calculations. We're like, we'll be able to nyx this. So, it's like all this additional and like as soon as we raise the rents, now we're profitable.
10:29 Heavily profitable. How much upside were on the rents, would you say? You were sharing with me before what's the lowest rent that's there and this is Clarkston Michigan so great area the lowest one was 650 a month and I think the highest was 975 okay which still is like way low so what's the unit mix are they all one beds two beds they're split so yeah four one beds four two beds and one studio so what's market rent so I'd say 1,100 to 1200 for the one bed 1200 to300 for the two bad it's huge. So you have a big delta there, right? Big delta. Couple hundred bucks. What market cap rate would you say for Clarkson? I would say 6%. Yeah. Okay. Would you say easily 200 bucks a unit? Yeah. Just put in all day.
11:15 So 200 bucks, 9 units, $1,800 bucks a month time. We're not even talking about lowering any of the expenses that you just said are going to happen. That's 21,600 in new NOS at a 6% cap rate because it's a great area. And that's another thing I'm really happy about with this deal. You didn't compromise location. You didn't go for the cheapest property possible. Quality over quantity. That's how we've always built our portfolio. That's why we still own a 7 unit in Northville, Michigan. Very comparable area. It's just A+ location. That's $360,000 in new NOI. Just by conservatively saying those rents are $250 below market rent. You got someone at 600 bucks. You said low-end market rent is 1,100. That's a lot more than 250. And with it even being the studio, I mean, you're easy. Like, and again, just to be conservative, like 950, that's huge.
12:03 And that's what you guys at home have to look at. You don't have to overanalyze a 9 unit. 200 9 units, 1,800 bucks per month in new NOI. 21,600 bucks in new NOI for the year divided by 6% cap rate, 360,000. Like, when you guys see that and third party management, like you got to get so excited. What helped you? Cuz so many new investors watching this will do this. They'll see this, but then they won't take action. Was it like the entrepreneurial background? I've been taking a risk my whole life, right? That's literally what it is. But it has to make sense. It's educated. I mean, we do the numbers. We're making sure there's a margin of error, right? And we look at we're still going to be on the upside even if it doesn't work, you know, but we know that time to pull. Yeah. You know, and that's just kind of how I've always done it.
12:49 What would you say to someone watching this maybe doesn't come from an entrepreneurial background, but they're like, "Okay, I'm motivated by key story. They're seeing these types of deals out there, but they're just not pulling the trigger." More than likely, it's going to be they're not educated enough. They're they should get to a live event, you know, to be able to talk to other people that are doing it. I mean, just watching the YouTube videos, and I watch a lot of them. If anybody is looking to get into this, it's educate yourself by getting in front of the right people. Don't just watch videos. You have to have more substance. I agree. I agree because you can almost consume so much information and be paralyzed. Paralysis by over analysis because if you listen to 10 different podcasts, one's going to say do Airbnb arbitrage, one's going to say do multifamily. It's like anything. You ask 10 people the meaning of success, you get 10 different answers. Well, if you ask 10 real estate investors what's the best real estate investment, you're going to get probably 10 different answers.
13:36 So, I think too it's about finding a model you vibe with and then going into that model. As Tony Robin says, like a framework, right? Absolutely. So, let's talk about tax benefits. It's my favorite part, right? Are you going to do a cost sex study? So, that's the tough part for us. Okay. We actually we talked to Terry after our call the other day and Yeah. So, because Angela's full-time job is more than the real estate component. Yeah. It doesn't allow us to do a cost seg. So, when we've got this rule when we can get to Stephan numbers and get getting those doors in, soon as we get to about 100 doors, we're done. She was going to leave her full-time job and be a pretty decent paycheck. So at $100. So the depreciation though is still there and you're still going to be able any cash flow you make you still get to wipe out with depreciation. You just can't now take until soon enough the depreciation gets like your roofing business.
14:27 Correct. But I love that like that's the goal cuz then every dollar you can make in that roofing business or any other enterprise you guys do, right? Cuz I know you're doing content now and all that stuff. You can use the depreciation against that. There are benefits outside the cost seg especially being in the contracting world. That benefit alone to be our own management company, right? And then structure that as well. You know, if any contractors are watching this, you know, so we have this new thing, right? I look at a lot of guys that I know in the roofing space that make a lot of money and I'm starting to teach them what we're learning and, you know, we're looking at a, you know, from roofs to real estate move, you know, making the money in the roofing game and moving these guys into an area that they do not understand. That's the game, man. That's what we preach is like keep your main thing your main thing. Bust your butt for your money. Then deploy your money into real estate.
15:13 Do the bur strategy. I mean with how much value you have to create here, a refinance will be no problem. So let's talk a little bit about the terms there. 5.5% interest rate. What were the terms? What did that look like? So it's a 5year and then 30-year AM. Oh man. So you had a 5year term. So that means you have that 5.5% locked in for 5 years. 30-year AM. That's great. Most banks, firsttime investors, they'll give like a 20-year AM. So, you're just paying way more every single month. A 30-year amp. I've never gotten a 30-year amp. Yeah. No, he had really good terms and these were the terms that he offered. Oh, that's great. You didn't have to beat him up for it? No. So again, this was just something where he is done with he owned multiple properties. This was his last one. He didn't want to sell it because of the gains. He was just done. He wanted to retire. I love that. So, he's just ready to give this last one up.
15:59 That's a good story. We always say the story is more important than the deal. Why are they selling? Were you excited by those terms? Tried to beat him up a little bit more. It didn't work. He is basically like, "No, if not, we're going to walk." I'm like, "No, okay, we're good. We're good with terms." Hey, you always got to try, right? Oh, 100%. If you don't ask. Yeah, 100%. Talk a little bit about like the inspection, like any concessions, anything like that you guys found or was it pretty clean deal? I mean, he was pretty firm again. Like first weekend there was four or five LOI submitted there. Caleb got I think like 40 phone calls in one weekend. Again because location, the seller financing, all the things that were offered. It was just like he was like, "No, it's all right. I'll just hold it cuz again, what was it to him or I'll go to everybody else?" So, okay. What gave you the confidence? Again, maybe was just, you know, the education and all that like you're in almost like a bidding war, right?
16:50 To say like, "Hey, no, this is what we're going for. We're going through with it." After the inspection, we looked at the most expensive components were already addressed. They were already taken care of. So we knew that the risk factor was far lessened. Some of the substant I mean roof was within 2 years. I mean that's your biggest most of the time your biggest expense. Property is just so well kept up. I mean honestly there are some things that were neglected just a little bit just because you see management companies involved. They're not going to be as efficient. We have a little bit of work to do but the big goal was taking advantage of what was there. The substance. I think he did really well at keeping the upkeep. He had owned it for 11 years. They actually used it as one of their homes. Kind of like a second home. It was very strange. Interesting. You know, because on the lake, so they had their boat there, they had their kayaks there. I mean, they used this place.
17:35 They knew the residents for the last 11 years. Wow. Immensely by name. So that all formatted to just like this is the smartest choice. We need to act on this. That's a great deal. All the deals we bought that have been like home runs had very similar situations. Like our 56 unit, he owned it for 30 years. When you eliminate the major CapEx items, parking lots, roofs, electricals, boilers, furnace, whatever, like you said, the upside is substantial. When there's those major CapEx items that have been deferred, you're coming in. If you're not getting a concession for that, it's major. You know, like for you to be able to eliminate that on your first deal, it's purely a management plate. That's our favorite bur strategy. See, so many people think the BRRRR strategy is I have to come in and redo everything. Redo parking lots, redo roofs, redo every single unit. This is my favorite type of deal.
18:23 This is the perfect first deal to get seller financing, which don't hit us up asking for seller. It's rare. You hit the lottery. You found the one in a,000 seller who's like, I'm good with not being cashed out today. Major CapEx items taken care of. There was pride of ownership, but there's meat on the bone. Because often times you'll find all this, but there's no meat on the bone. This is a perfect deal. That's like our first seven unit. I know. Three partners. The guy, one of the partners managed it. He knew everything. He knew everybody and just the rents were 700 bucks, 600 bucks and the rents were supposed to be 1,100. Empty barn, nothing in it. We quickly rented that out. Pride of ownership. We had to do a couple things. You know, how many did you retain after you raised them? We retained everybody there. That's a big deal. And this is such a good learning lesson.
19:09 We raise it just below market. Anyone gets upset when any price goes up in any business, any price goes up. Like if my phone bill goes up, I'm like, "What the fuck?" Yeah. I mean, my gym membership goes up every year. We live in an inflationary society. Things only become more expensive. But then they go on. They're like, I'm moving. I'm going on rent. Oh, so this is more over here. And oh, well, I'll go over. Well, it's more. And then I have to move. I have to get a U-Haul. I have to pack my I'm going to break my dishes. That's the strategy is you see what market rent is. You go just below cuz then people have to make the cognizant decision of am I going to pay to move? Cuz moving costs money. Here's a tip and this is brilliant. I don't know who came up with this. Probably you. So, we're at our 42 unit right now. There's a sign when you walk in says, "Come sign a renewal today." Because once you get to market rent, you make your money keeping the heads in the bets because when they move out, you have to pay.
19:56 You lose vacancy. You have to fill it and you have to turn it. But there's a sign out here in the front lobby that says, "Come sign a renewal. Thinking about moving and it breaks down all the cost of moving." That was brilliant. That's smart. Yeah, because it puts it in their face cuz then they go to go up 25 bucks. I'm going to spend $1,000 to move. Just doesn't make sense. So, that's the thing. Once you hit market rent, keep the heads in the beds. I made a big mistake early on, always trying to push the highest rent. And she's like, "When somebody moves and maybe we could have got 50 bucks more, but we got 25 bucks more, but now we lose $3,000 in unit turns." She's like, "It's not worth it." So, you make your money on the renewal. So, that's a big thing. Why real estate over stocks or like the 401k? That's actually a funny question actually, right? Right now I the amount of money I have lost in the last 30 days in the last 2 weeks I wish I would have pulled it cuz we actually we did talk about actually about a month ago while this deal was going on like you know why don't we pull our stocks and actually let's go buy two let's not just do one let's do two no let's try let's just get our feet wet let's make sure it's the right thing the right path and now I'm like we probably should have pulled that money and went and bought that second one out right so it's like but we know it's going to retract and then we're going to do it bricks and sticks you say yeah 100% you I honestly, it's no joke.
21:10 I mean, if you own it's there. It's tangible. You can feel it. And that's what I want. I want to know that my asset is something that actually is sitting there, not something that can be just ripped away. And it was literally ripped away over the last 2 weeks. Yeah. The president does something, stocks fall 20, 30%. Your multifamily property can't do that. Stocks are so outside of your control. 401k is so outside of your control. That asset every time you drive up to it, as long as you're following the blueprint and following the plan, as long as you're increasing the income, lowering the expenses, managing it properly, that property is going up cuz it's in a great area. Like we always say, you can change tenants, you can change cabinets, you can change paint, can't change location. One of the things that we've actually looked a little bit more in depth on coming from a business standpoint is going to be just cuz you're making money, don't spend it all. Make sure that you treat it like a business still.
21:57 Even though it's multifamily, it's different. It's still a business, still cash flowing. You need to make sure that you are managing that money correctly because there have been downturns in real estate as well, right? So, and when that happens, you'll have that protection by treating it like a business and you'll be able to ride the wave, you know, until it, you know, turns back up. So what's next? More deals, manage this one. I'd say after this year, after this year, let's get through one full year and just, you know, make sure that we do it right, we manage it right, we watch the cash and, you know, just we don't overspend. We want to make sure we're retaining, you know, that's another one is learning how to communicate. Yes. With the residents. This is completely new world to us. This is not like dealing with a customer when I'm selling them a roof, believe it or not. It's like this is a person that's not a we do the work, we're done.
22:44 We'll see you know, if warranty is needed, but this is like a continuous relationship. Totally. And you know, it's one thing I took some advice from you is gift baskets. You know, just make sure make yourself known. You know, make yourself, you know, known that you care. Past, you know, you just you just rent for me and you're just a person that's in my place and just pay me when you know, when you have to. You want more than that. You want them to actually feel the relationship. One of the big things is worrying as you start to expand out to more doors. It's more people. How do you guys manage that same type of interaction, you know, type of relationship with that many people, right? I mean, because you're not making 200 phone calls, you know? I mean, it's just it's that'd be ridiculous, right? So, how do you manage that? Yeah, I think the biggest thing is having that management software in place because you can do like texting through there and then also to like setting from the get-go of like how to communicate with them.
23:36 One thing that was always taught to me from the beginning of like not to give out a personal number. There's an emergency number and then communicate through the portal or if it is by via phone, it's only 9 to5 or our office like when we were smaller, we were 10 to three. We could be contacted because we knew we were at other locations and things like that and that was via phone or via a scheduled meeting for a phone call. So that way we're still communicating with them but it's in like a confined period. So they're like, "Okay, after 5:00 I can't contact anybody. There's nobody to contact unless an emergency." So that always was very helpful that those systems were in place so that they were able to know when I can contact somebody, when I'll be responded to. And then I always go off of you, I'm sure you know too, like the business like 24 or 40 hours is a professional response time as well.
24:24 So, and the biggest piece of advice is even though it's nine units today, run it like it's 9,000. How you do anything is how you do everything in any business, right? And what you resist will persist. You can't call up at 3 in the morning and be like, "Sweet potato fries and more pillows." You know what I mean? It doesn't work that way. But if you allow that, they will do that. You know, so it's protocols, it's procedures, it's scaling any business, you know? Set it up properly from the beginning so you can expand. Before we wrap up, give everyone the game. What's this gift basket thing? I've seen it before. Toilet paper gift. No, it does. It absolutely. It's the little It's the little fine touches. Yeah. So, just like a moving basket. So, like as you're moving in, like what are the things that everyone's like everyone's just worried about getting their boxes in, but they're thirsty. Yeah. We give them water or like they're like they need to wash their hands, we give them a little thing of soap and like a dish towel.
25:12 So, always things like as you're moving in snacks. I'm always a snack person, so everyone always eats snacks. We do that. But also too, like when you meet them as well, kind of like, "Hey, what do you like about living here? What are some things that we could do to help improve this?" And again, just like giving them something. Everyone always likes to get something. So, if it's like a holiday, we might do like just a little like holiday basket or something like that. Giving you guys the game for free. The move in baskets are the game changer. Even if you have a single family home or a duplex, do that. So, I do have a question. When it comes time to refinance, do you hold do you hold the property or do you roll it up 1031? People are kind of split on that. You know, some say I'm soon as I buy, I'm holding. You know, I'm holding every piece of real estate. Some of these people are like, I sold things I regretted selling. How do you determine whether or not you roll up or you hold?
25:58 Because, you know, I'm looking at this as yes, this was a great deal, you know, and nine units it's cash flowing. If it's going to continue to cash flow, why not just try to find a way to broker another dealt that Right. So, what is your take on that? When to refinance or when to sell is totally up to you in your business plan. We've sold a lot of properties and we've kept smaller properties. You know, we still have seven units, 8 units, 12 units, and we have 42, 50, 6, and 100. It comes down to your goal. Everyone's end goal is completely different. So, it's back to like saying like what's the best diet? Well, the best diet is the one you enjoy and the one you can stick to. Best investment plan is one you enjoy and you can stick to. So for us, what it came down to is we have the thousand unit target cuz we feel that's going to create the lifestyle we want, the legacy we want, the impact we want, and also the infrastructure we want.
26:44 We look at every property every single year and we say once we've maxed the NOI, how much more can we really increase it? And we've refinanced. We've done five 100% cash out refinances. We've kept all those deals, but now we're starting to evaluate those smaller deals. Yes, they're cash flow. I've got all my money out. So I have a free property. I have no money invested and I'm still earning money. I mean, that's an infinite return on investment. But every year expenses go up. Every year taxes go up. Every year insurance goes up. I mean, are roofs more expensive now than 10 years ago? Absolutely. Right. Rent can only go up so much each year before people are just totally priced out. So, if I can't grow the income more and my expenses keep going up, then I might have to move on. We view each piece of the portfolio as a moving piece, right? And I also think it like the market dictates.
27:30 Like if someone called me today and offered me a stupid price, I would have to really consider it. And then what are we going to do with that money? Do I have a replacement? If I had a perfect replacement like this, we sold a couple houses in 1031 cuz I had that replacement lined up. I sold all my duplexes and my 4 unit and bought the 56 unit cuz I had that replacement lined up. What I'm struggling with right now is I want to sell the small stuff because also ease of management. As you get bigger, let's say you guys get to 100 units, it is easier to manage one 100 unit than a 9, a 12, and 8. Unless you can buy those 9, 12elves, and eight all on the same street, then I would argue it's pretty much the damn near same thing. But if you have a nine in Clarkson, an eight in Hazel Park, a 12 in DW, a 10 in Harrison Township, it's a logistical nightmare. Yeah. And you're paying more to your team to do that.
28:15 So, it also becomes ease of management, too, as you scale up, right? I like this response. When you have an on-site dude, wait till you get an on-site manager. That's when the game changes. When you know you're in Florida, you're doing your thing. Something goes wrong there, they call the manager. They don't call you. Once you get that, it's hard to like go back to the 8 unit. And two, when you drive up to it, like you feel so proud driving up to your 9 unit right now. We do. You know what I mean? Absolutely. Think about driving up to a 24 unit, but ease of management is big. And like, dude, if someone called you tomorrow, offered you 2 million for that building, we would probably take it cuz then you're like, because we'd want to go to a 24 unit, right? And then two, once you refinance, you got to leave 25 30% equity in there. So you still have this debt equity. Hey, I have a home. I have a ton of equity in there. Same thing with the property. Then you start to say, can I move that equity somewhere else and go do this again on a bigger level?
29:02 Keith, what would you say to someone who's watching this, they're on the fence about doing their first deal, they were consuming information, they're scared, knowing what you know now, what would you tell them? Reach out to a resource that actually is doing it every day. Again, get back in front of live events. Don't just watch YouTube videos. If you're serious about it is scary. We were scared, too. And you know, I mean, it's big numbers. I mean, to purchase one of these places is not cheap and there is a lot of risk involved, but as long as you do it right and you get around the right people that will navigate you correctly, you're in good hands. Every deal we close on, you feel it. I don't know if it gets like easier. I think when you're especially when you're private, you know, I mean, you guys didn't syndicate it. This is your own capital. I don't really smile at the closing table. Promise you that's when you get to the refinance table, you'll smile. Yeah, you'll smile. Yeah, that is probably the thing I'm waiting for most is actually seeing that result, right?
29:50 Cuz then it's real, right? It goes from I mean, obviously it's a real asset, but then when you see that capital coming back and you still own the asset, then you smile. So, people want to learn more about you and you have a roofing business here. If they're local, Metro Detroit, a lot of, you know, obviously people from all over listen and watch, but they're local, they want roofing help for their multifamily properties. Where should they go, man? Yeah. So name of the company is Premier Roofing Renovations and you know we're in roofing sighting gutters. We've been in the game for quite a long time over a decade now. Platinum preferred by and backed by the manufacturer Owens Corning. You can go to formyroof.com. Got it. Facebook. We're doing a lot of Facebooks. Appreciate it, man. Thank you so much for being here. I greatly appreciate you. Thank you. Okay. So you just watched the entire interview with Keith. Hopefully this was inspirational. Again, we show you real life examples, not just Andrea and I anymore.
30:39 We are now creating case studies with our clients to show you that you have to get into this multifamily game because when you get into the game and you buy a property, it excites me. It fulfills me. It helps me know you are betting on yourself and betting on the best vehicle to create true wealth and financial freedom, which is multifamily real estate. So, I want to hear from you. Drop a meaningful comment in the comment section. What were your takeaways? Were you inspired by this? Do you have questions for us about anything we talked about? Drop it in the comment section. If you want to learn more about multifamily real estate investing, grab all my free resources in the link in the description. If you want to level up the way Keith did, I want to invite you to apply to the one-on-one mentorship coaching program where we will walk with you every single step of the way of finding a deal, negotiating a deal, underwriting a deal, closing a deal, and then most importantly, operating and managing a deal to get to a total 100% cash out refinance with myself and my wife and the Stephan Group real estate brokerage.
31:34 Only work with a select number of one-on-one clients at a time. So, if you're ready to play at a high level, like Keith said, you got to get around people who are doing what you want to do. Click the link in the description or just shoot me a message on social media with the word mentorship to learn more about this. As always, thank you so much for being here. Until next time, we'll talk soon. Text.
Topics: First Deal, Seller Financing, BRRRR, Property Management
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