The Tony Stephan Show · Episode #023
He Just Bought A 7 Unit Apartment And Is Managing It Remotely
Ryan and Emily Downey are a husband and wife team from Bowling Green, Kentucky, with W2 jobs. A few months after joining Tony and Andrea's coaching program, they closed on their first 7 unit, a few miles from the Stephans' 42 unit. They flew in for an in person coaching day on management and operations.
Ryan says they have one vacant unit about to fill and just finished their first light unit turn with contractors Tony and Andrea recommended. Their vision is to stack assets and go to about 25 units next. Tony tells them their price point is rare and not to rush a refinance if rates are high, because a better rate later means more proceeds.
The session gets practical. Tony warns that the tax return is how a bank calculates NOI, so they should not write everything off before a refinance. Andrea explains CapEx versus repairs and how a good CPA can prepare a net cash flow statement. In a vacant unit, she shows how to turn it without waste: a checklist, a cleaning of about $200, no automatic paint or carpet, and photos and video before a vendor is paid. Contractors are paid on a set schedule, because you can't scale chaos.
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Key takeaways
- Do not rush a refinance into high rates. Waiting for a better rate can mean borrowing more.
- Before a refinance, your tax return must show the property's real profit. Aggressive write offs lower the NOI the bank sees.
- CapEx is what you replace every few years, like carpet or appliances. Repairs are day to day fixes, like an outlet or a disposal.
- On small buildings, aim for operating expenses around 30% to 35% of income. CapEx and debt service sit below NOI.
- Turn units with a checklist. Clean and recaulk before you repaint or recarpet by default.
- Pay vendors on a schedule, after a completed checklist with photos and video. How you start is how you scale.
Guest: Ryan and Emily Downey
Ryan and Emily Downey are a husband and wife team from Bowling Green, Kentucky, who both work W2 jobs. After joining Tony and Andrea Stephan's coaching program, they bought their first multifamily property, a 7 unit in Metro Detroit, which they manage remotely with a local team. Their next goal is about 25 units.
Chapters
- 0:00 Where Multifamily Investors Make Money
- 0:17 They Just Bought Their First 7 Unit
- 1:42 The Plan: From 7 Units to 25
- 2:10 Refinance Timing and Interest Rates
- 4:14 Keep the Books Profitable Before the Refinance
- 4:50 CapEx vs Repairs
- 5:32 The Cash Flow Formula
- 6:57 How to Turn Units Without Wasting Money
- 7:43 Common Unit Turn Mistakes
- 8:12 Managing Remotely
- 8:40 The Vendor Payment System
- 9:48 You Can't Scale Chaos
- 10:06 Inside a Real Coaching Session
- 10:35 How We Help Clients
FAQ
Why does Tony tell the Downeys not to rush their refinance?
Because proceeds depend on interest rates. If rates are high at the 12 month mark, waiting until they fall could let them borrow more, since the debt service would be lower. He tells them to be patient and keep maximizing the property in the meantime.
Why does the tax return matter for a refinance?
Lenders calculate NOI from what is on the tax return. If an owner writes everything off to avoid taxes, the property looks less profitable and the refinance suffers. Tony says to keep repairs and CapEx correctly classified and show real profit until the refinance.
What is the difference between CapEx and repairs?
Andrea describes CapEx as things you replace every few years, like carpet during a unit turn or an appliance. Repairs are day to day fixes, like replacing an outlet or a garbage disposal. CapEx sits below NOI along with debt service.
How do they turn a unit remotely?
Maintenance walks it with a make ready checklist to confirm everything works. If walls are clean, a cleaning of about $200 may be enough instead of paint, and tubs can be recaulked or glazed. The vendor returns the checklist with photos and video before being paid.
How do they pay contractors?
On a set schedule that vendors agree to up front: ACH on set days of the month, or checks that can take 7 to 10 days. Andrea started doing this after getting payment texts at all hours. Tony calls it the difference between a business and chaos.
Coaching Day: Managing a New 7 Unit From Out of State
A coaching day with the Downeys
"The money is made in the management and the operations," Tony says at the start. Ryan and Emily Downey joined the coaching program a few months ago and closed on their first 7 unit, a few miles from Tony and Andrea's 42 unit. They are a husband and wife team with W2 jobs in Bowling Green, Kentucky, and they flew in for an in person coaching day.
Ryan gives an update. They have one vacant unit about to fill and just finished their first unit turn, a light rehab, with contractors Tony and Andrea recommended. Not having to find vetted contractors on their own has been huge. Their vision is to stack assets, and he would love to go to about 25 units next. Tony tells them to keep their books dialed in: if you can do it on 7 units, you can do it on 70.
Be patient with the refinance
Tony shares a lesson from his own portfolio: they grew fast before their systems caught up, and a lender later cut the loan proceeds on a refinance. He tells the Downeys they bought something rare: a well located property at a price point that barely exists now, in an area where people want to live. When he bought nearby, units rented for $600; now they are around $1,100.
His advice is not to treat 12 months as a deadline. If rates are high then, wait, because a lower rate later means lower debt service and more borrowing power.
Your tax return is your NOI
This point is important, Tony says. What you put on your tax return is how the bank calculates your NOI. People write off everything to avoid taxes, then expect a big refinance. If CapEx was booked as repairs, the NOI looks lower. Until the refinance, the property should show its real profit.
Andrea explains the difference. CapEx is something you replace every few years, like carpet in a unit turn or an appliance. Repairs are day to day items, like an outlet or a garbage disposal. On small buildings, operating expenses should run about 30% to 35% of income when dialed in. Below NOI come debt service and CapEx, and what is left is net cash flow, which a good CPA can prepare as a statement. That is why year one can be break even: money goes into CapEx to boost NOI.
Turning a unit without waste
In a vacant unit, Andrea shows how to think about a turn. Maintenance walks it with a make ready checklist to confirm the appliances and outlets work. If the walls have no marks, it may not need paint; a cleaning of about $200 may be enough. A common mistake is repainting or replacing carpet every time. The tub might just need a good clean and fresh caulk; if not, it can be glazed.
To manage it remotely, the vendor turns in the completed checklist with photos and video. "You're not getting paid until I get this checklist back," Andrea says.
You can't scale chaos
Andrea also explains her payment schedule. Contractors agree up front: ACH payments go out on set days of the month, and checks can take 7 to 10 days. She started this after getting invoices at 8 p.m. on a Friday and texts asking for payment at 7 a.m. Saturday. If a contractor asks for 50% up front, she may offer to pay for supplies until trust is built.
"How you do it from the beginning is how you'll scale it," Tony says. "You can't scale chaos." In the beginning, everyone called Andrea. Now she does not walk units anymore, and that is how they manage without being there.
Transcript
0:00 The money is made in the management and the operations and today Andrea and I get to meet with our clients the Downey's who successfully joined our coaching program a few months ago, closed on their first seven-unit small multifamily apartment just a few short miles from our 42-unit apartment. So they flew in today. We are doing their in-person coaching day where we're going to teach them the management, the operations, and how to turn the deal analyzer where we underwrote the deal, we analyzed the deal into real-world success. See, anyone can put numbers in a spreadsheet, but management and operations is where you make all the money with multifamily real estate. And this is one of the biggest thing we teach to our clients. So I figured why not pull out the camera and bring you along with us so you can be a fly on the wall, see behind the scenes of a husband and wife team who are W2 workers.
0:47 They're not entrepreneurs who made a big investment into themselves to get coaching and mentorship, signed up for our mentorship program, closed on a multifamily deal, and now are learning how to manage and operate the deal. So let's go jump in there for the Downey's coaching day and let's show you what it takes to successfully operate a multifamily deal. My name's Ryan Downey. We're from Bowling Green, Kentucky, and we're a husband and wife team. Emily and I purchased a seven-plex and we are in the trenches operating. We have a vacant unit that we're about to get filled. We just turned the first unit turn, little bit of a light rehab, working with the contractors that Tony and Andrea provided, which has been super clutch not having to try to find a vetted person that's going to do the work for us. It's been really good. The money is made in the operations in the deal and sitting down with Tony and Andrea to have that one-on-one meeting with them is just so important.
1:36 That you don't know is what will get you and we learned a lot of good stuff today coming down. 25 unit next, baby. All in. What's the vision here? I know we've talked about a little bit and then we'll get into the ops. You guys thinking here? We're looking at stacking assets. There's a couple different things in Bowling Green that I've had my eye on, but buying this now, I have another bank is the way I look at it. Our options, you know, obviously cash out refi or just pull money out of the deal. I would love to look at the next deal. And ideally I would love to go from here to a 25-unit because that's that number that you guys talk about where you can possibly do a million-dollar cash-out refi. Keep those books dialed because if you can do it on a seven-unit, you can do it on a 70-unit. We grew fast and we didn't have like the systems and the back end to where we do today. And then we went to do a Fannie Mae loan, which got approved for a very high dollar amount at low interest rate.
2:24 Then they ripped it to shreds and now we're more likely going to CMBS because they dropped about 2 million in proceeds. Just it's a great first and long-term investment because price point is like rare. You got a good rate before this all happened. I don't know what happens next, right? Like with these rates and the stock market, it's just crazy right now. So you locked in and it's an area where people want to live. You know what I mean? A lot a lot of people in that price point, they're looking very remote. And it's like, "Dude, they don't rent this fast. 1,100, even two for I'm like, "Wow, each points at 1,100 now?" No, I know. When I bought right next to you, dude, they were renting for $600. But you see what I'm saying? If something happens in the economy, those don't go anywhere. It's these $4,000 rents that people are going to $1,100.
3:12 You don't those can't be replaced. That's why I'm just telling you, man, like long-term, you got something here that's like just not or doesn't really exist anymore. Like I can't remember the last time we've seen something in Macomb County trade at under $700. No. You got in before this Treasury uptick. Weeks. You and me both, bro. That's why we always say success love speed. You need to hold and wait and do as much as you can to like max this puppy, but be patient. You know what I mean? If it's another two years of rates like this, like something's going to have to happen. The stock market's at all-time highs. I don't know what happens, though. Does it continue to run up or is there a massive correction, which then they have to lower rates with? Something's got to give sooner or later. So, you're locked in. So, that's why I'm just telling you don't be like, "Hey, I've got this deadline in 12 months." Because if 12 months it's 6 and 1/2, don't refi?
4:02 Because then maybe 24 months they're like, "Dude, you refi it's going to be 4 and 1/2." Whoa. Because then you can borrow more money. Debt service is lower. You get what I'm saying? It's just a product of interest rates. Inflation's going to do its thing. This is very important, too. What you put on that tax return is how they will calculate your NOI. So, you can't be like, "I want to write everything off and show loss, but then go to the bank and be like, 'Oh, look at our NOI.'" So, this is important to understand. For like 2 years or 3 years or 5 years, however long till you refi, you have to make the property look as profitable as possible. Then you can write everything off and just hit your 1.2. You know what I'm saying? So, people will try to write everything off so they don't pay tax, and then they're like, "But hey, I want to refi and it's worth 900 grand." And they'll be like, "Well, dude, you wrote everything off in repairs and maintenance." "Well, that was CapEx." So, you lied?
4:49 Don't be in that position. So, there's CapEx, right? You want to explain to her what CapEx is? So, it's anything that happens every 5 years. So, like if you're doing like you have to do unit turn or doing the carpet, that would be a CapEx. If you're buying an appliance, that would be CapEx. Is there a dollar amount associated with that? No. It's just something that you'd only have to replace every 5 years. But if you do like someone has like an electrical issue, like replacing an outlet, that would be a repair. The garbage disposal, something like that. That's like your daily repairs. And like in a seven unit, especially yours, you shouldn't really have too many daily repairs, right? But then your CapEx items, like if you do end up doing anything like with the washers and dryers or if you do end up doing like storage, like that would be CapEx. It's your income, so it's going to be your gross rental income.
5:35 Let's say 95,000. Then you're going to have your OpEx, your operating expenses, right? Repairs and maintenance, taxes, utilities, cleaning, leasing. This should be 30% if you're dialed, maybe 35%, right? What do we run at on the small buildings? 30%? This is taxes, utilities, cleaning, leasing, repairs, and maintenance. That's NOI. Below NOI is debt service, your P&I payment. Right now you're on IO, interest only, and then your CapEx. This is your one-time repair and maintenance. That equals net cash flow. So, your NOI is what? How much is worth, right? So, that's where people will take this CapEx, pump it in here, and it kills their NOI. So, it shows up on the tax return, but it shows and on a profit and loss statement, it shows up on a profit and loss statement, but it's below the NOI.
6:25 NOI doesn't include debt service. Put principal and interest in there. Taxes and utilities absolutely go in there. A good CPA should be able to prepare a net cash flow statement for you, too. That's after debt service, CapEx. This is your return on investment for the year in cash. So, you want to protect this, and you want to understand this is why we say sometimes year one is break even because we're doing a lot of CapEx. We're pumping in to boost NOI. How do you think you get NOI? You got to boost it. So, Angela, I would love for you to explain, like start to finish. This is how they leave the units here. So, on the other side, the building over there, their one bedroom, they it's a complete wall and the bathroom's outside. That's the only difference on that side. So, like go over, like if they take over a unit or they're getting a unit back and it's left like this, what happens?
7:14 Yeah, so we just have our maintenance team walk through, make sure that everything's working. So, anybody doing your maintenance, you just make sure that everything is functioning, your dishwasher, microwave, stove, fridge, outlets are working. The that make-ready checklist is in Tony's folder, too. Just give them that checklist, and then this one doesn't really look like it needs to be painted. There aren't any marks on the walls. Of people are like, "Just paint it." so something like this I would just have the cleaner come through and do a clean. How much would a cleaning be costing? About $200. What are some mistakes with turning units? That somebody would walk in and just paint this automatically or change the carpet automatically. A lot of people just like change carpet every time. Yep. And then here, making sure that this tub or I mean this is probably fine, but this is where we do the glazing.
8:02 So you either glaze like the whole thing or just the bottom, but this probably just needs to be a good clean. That just looks like dirt. And then they could recaulk it at the bottom and that's it. So before a tenant moves in, how do you ensure it is fully good to go remotely? We using that checklist. They have to turn that checklist in to you and then they send you a video and a photo cuz even like here, if we don't walk it with them with having multiple locations, we get video and photo. So say I could give that checklist to like somebody like Chris. Oh yeah, yep. And he has to turn that in and then we say like I always say don't you're not getting paid until I get this checklist back and order to Brian, you hear that? That's very important. They do like our payment form like our payments go out on this day and this day. If it's like if it's checks your building it's 7 to 10 days it can take to be paid out.
8:49 If it's ACH we pay those out on like the 1st and the 15th of each month. Same kind of thing we do with the tenants cuz some people will like send you an invoice. You're getting call like where's my payment? Money? And that's like I get it, but like we also have what we're doing so that helped with that side of things. You ever pay you need your contractors immediately like as soon as the work is done? No, because I mean we just like I mean if somebody like sends me an invoice at 8:00 at night I can't you know turn around and get it. Did you get it? Did you get He wanted 50% down. You can always push back. Till they like build a relationship or just be like okay, I'll pay for the supplies. So yeah, I mean that's the that's only reason I do that cuz I'll get like I said contractors that'll send an invoice at 8:00 on a Friday and then Saturday morning at 7:00 I'd be getting text messages like where's my payment?
9:36 So that's why they all have to sign that and they're signing I get ACH or I get the check. If it's ACH, it takes X amount of days or on this day, whatever, you know, again, you agree on and that's when it goes out. That's why we're saying how you do it from the beginning is how you'll scale it. You can't scale chaos. Cuz I did that in the beginning. Everyone was calling her, texting her like and she's like, "Holy smokes, you know what I mean?" Like it's crazy. So, this is where you like learn this and operate this way. But yeah, that's it. See, that's how we don't have to be there. She doesn't walk units anymore. So, you just got to see behind the scenes of the Downey's coaching day of how we're teaching them how to successfully manage and operate their first seven unit apartment deal. I know they're going to be massively successful. They are just wonderful, salt of the earth people and Andrea and I are so blessed and fortunate to be able to coach them. So, if you're watching this video, you want to learn more.
10:22 Number one, grab my book, The Small Multifamily Burn Method. Grab it for 20 bucks on Amazon or get a free digital download. Click the link in the description. Number two, come to our next workshop. We're always running virtual workshops and in-person workshops. Great place to learn more about this. Or number three, if you are ready to come be like the Downey's, come work with us hand in hand so we can help you find an apartment deal, analyze an apartment deal, close on an apartment deal all through due diligence and then most importantly, come meet with us in person to operate an apartment deal. That's our highest level service, which is our one-on-one coaching program. Click the link in the description to read more about it. Fill out the coaching application. If we feel you'd be a good fit, we'll reach out, schedule a call and potentially work together. Until next time, thank you so much for being here. We'll talk soon. Thanks.
Topics: Coaching Day, Property Management, First Deal, Out of State, W2 Investors
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