54 Units Deep Dive: What's Actually Working?

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1:02And I think we are up to number six or number seven. We've got a new guest here going to do a portfolio review. Stephen, thank you for being here this Sunday morning. Thank you, Mike. I'm really excited to have my portfolio being reviewed by yourself. I'm on year probably seven or eight of 10 of suck as you say in the channel. And in the beginning, I was focused on scaling. And my portfolio, if I'm being honest, it's mostly appreciation focused because I invest in more expensive markets like California. And my portfolio, after seeing Dion's videos, I'm like, I have more units than him at 54. But he has $20,000 plus a month in cash flow. And as you've mentioned, 80% of your viewers, myself included it, wouldn't love that type of portfolio. So what love your input to see what changes to make to my portfolio, to get to, I guess, what Dion is. Okay. So you talked about California, California is a big state. What, what, re, are we like SoCal, NorCal, Central Valley, Sacramento? Where are we at?

2:03So I started off house hacking in the Bay Area in 2017. So, you know, I was putting 10% down on houses, you know, renting out the rooms and, you know, an obviously in the Bay Area, it appreciates like crazy, like most of the rentals I bought in 2017, for 800, they're now worth like 1.4, 1.5, doing nothing, right? And rents haven't really went up that much, I would say, relative to the market value. So that's where I got my initial journey started. So I got three of those in the Bay Area. All right. And then I quickly realized, you know what? This is not scalable because I'm not really cash flowing. It's more appreciation. So I did a cash out refinance for better for worse. I created Alligators as, you know, the term that you created. And I used that to basically scale into apartment complexes in Oklahoma City. Oh, okay. So I basically self-funded all these. And I have a 26 unit and as well as a 20 unit. Okay. So the 26 unit makes enough cash flow that it covers the Alligators, you could call it.

3:07Okay. Yep. The 20 unit, I'd call it a break even deal. Okay. My single family homes, as I alluded to earlier, since I pulled out so much equity out of it, they're overall negative. Yep. I have a mobile and park deal that I sold at a loss by the new seller carry second. So I am getting monthly payments on that one as well as a note. Okay. So overall net, I fit the four doors. Mm-hmm. The real estate portfolio is probably worth around 10 million. Yep. About 5 million is debt, 5 million is equity, so about 50% LTV. Gross rental income is about $50,000 on average. And I would call my portfolio probably break even if I'm paying to the parent. Yeah, I mean, it sounds like that's what I would have guessed. You're not really cash flowing anything. Yeah. You know, again, we've been talking for less than five minutes, right? So, you know, this is sometimes what I see in folks

4:09kind of around year 6, 7, 8, they start to take stock of what they have, right? What they've built. Because the first five years, you're just trying to get that escape velocity. And then you get to some point and you turn around and you go, you know, what do I got? And, you know, I think right now, you're, you know, you got a portfolio that's that's that's heavy, right? You've got a 20-unit Oklahoma that's break even. That's a problem. You know, you've got you've got alligators in the bay, right? Which is a problem. And these are all my words. So, you know, these are just just how I think. You know, so I think I think there's, I think there's some cleanup to do. Right? If I'm just being honest, I really hate alligators. And it doesn't sound like there's any short-term fix here. It's not like you're remodeling something and, you know, what's an alligator today won't be tomorrow. It sounds like these are fully leased. And, you know, it kind of is what it is. Is that fair? That's fair. You hit the nail on the head. So, the 20-unit is break even.

5:10And then the bay area properties, I'd say, over our alligators. And that's with me self-managing it as well. So, yeah. But on property management, jeez, you're even more negative. So, how much equity is left in the... So, you have three houses that are... Are you still house hacking one of those three? Or... No. So, I actually relocate to Southern California, Los Angeles, just as expensive. And I'm living in a house right now. And honestly, part of my escape velocity is paying off this house. So, you know, I could, you know, trade assets. And unfortunately, where my job is, you know, if I can move into my rentals, it's most ideal. But where our jobs are for my wife and I, you know, we're kind of stuck here. I got it. Okay. Yeah. Yeah. So, again, just, you know, the first couple of thoughts I have is, you know, I would probably look at selling off the Bay Area properties one at a time. And then you'll scoop some equity from that. And then to your point,

6:11you have a choice what you want to do with that equity. You could A, slam it into where you're living now. If that's really a goal of yours, right? Paying that off, you know, taking that from whatever, just four grand to zeros, not a bad option. You could take it and throw it up the 20 unit, right? Because again, one of the ways to make that not break even is to, you know, pay down the debt is one way. You know, it's, it's multifamily is tough right now. Because I, I don't think it's a great time to sell. In fact, Olivia and I have lots of these and she tells me all the time, hey, can we sell building A building? See, I'm like, honey, that was, that was two years ago, right? It's not, this is a time to buy that stuff, not sell that stuff. So that, I mean, that's, that's the first thing that jumps out of me is, you got to get rid of the alligators. Alligators just teach you a lie. That's why I have that image. It's the only picture in my first book. I don't think I list them all at one time, but I would list them one at a time and, and then decide what you want to do with that equity. You could just, you could stack it.

7:12You could, you could take a portion towards your primary or you could just build up reserves because it sounds like these, these Oklahoma ones, you know, you, you, you have more of a lift to, to keep those going. Yeah, yeah. So you actually kind of, because I kind of had a plan in my, I was curious to hear your thoughts, because I didn't want to influence your decision. You hit the nail on the head. So, you know, I, I have been listing my, my 20 unit per sale. As you alluded to, it's not a good time to be a seller. It's good time to be a buyer for multi-family. Exactly. Because interest rates are higher. Cap rates are higher. And your NOIs is getting slammed when insurance goes up, when your rents are stagnant, more turnover. So, you know, I did list it just to see what, you know, offers I'd get, never hurts to try. But as you mentioned in your channel, I, when I buy multi-fam, I pitch creative financing. So, I'm very open-minded to selling creative financing. Sure. But basically, a move that I was thinking of doing was selling the 20 unit first. Because I know what people don't realize of apartment complexes, it takes longer to sell.

8:13Oh, I'm paired with a single family home, especially in the Bay Area. I, I know by list the Bay Area rental, three months tops, it's gone. Fair. You know, made three to six, or even six being conservative. Yeah, you know, you know, you're certainly going to sell it. But I was thinking of selling my 20 unit and actually just paying Uncle Sam, you know, it's true. And take that money and actually either A, lump sum it on my primary. Well, what do you think, yeah, what do you think the equity is in the 20 unit? I probably think it's aware for around a million. My, my debt is about 400. Oh, you got, okay, so you're, okay. So, it's about 600. But after taxes and fees and, and whatnot. You're all worth more 100 or whatever you have 400. Yeah, okay. And, you know, my primary mortgage is about 850. But a thing I've been thinking about is I do own a rental in Orange County, where I'm local. And I could take that 450 and build 280 use. So, have a three bedroom, two bath, backyard house.

9:15You convert the garage to a one bedroom, one bath. Yeah, do, do, do. Crazy as if you combine the rents. It's probably about $6,500 for those two. And if I use that money from a break even property, I can transform it into two paid off 80 use. That would probably mostly cash flow that $6,000 that I alluded to. Yeah, again, I, I just, I think selling multi-family in this environment, unless you're willing to give it away is, it's a tough ask. You could always get lucky. I mean, clearly, you can always get lucky. The fact you're open to seller financing, you can pitch that, gives you chances. I think the most liquid assets you have are the alligators. Yeah. And I mean, every month it goes by, you're feeding the alligator. So again, I'm going to tell you from where I said, it doesn't, like you could do both at the same time. I would find the house that either has the most equity or you think you can vacate the easiest. And list that thing just as fast. And then whatever happens, the house or the 20 unit cell,

10:15you can then execute the ADU plant if that's, you know, what you want. I, again, alligators are just nasty animals that just will keep eating you alive every month. And, and that's why I don't like them. You know, you, you have to, you have to, you have to get out of that, in my opinion. That's the problem. God, is it worth it to basically tend to exchange it into like a cheaper market? So I do own some rentals in like Huntsville, Alabama, where you could basically buy a new construction property, like a linear home for about probably 250 cash with a discount. Yeah. And they do rent for about 2,000, 2,100 ish. So, you know, I could tend to exchange it, you know, but let's say I sell something for 1.5 million in the day area. The debt's about caught 600. I can tend to exchange it. And I could probably own a few, few of these rentals free and clear to be honest. Be careful with the 1031. Again, check with an operator, but I do believe you have to go bigger than what you sell. So, if you sell for 1.6, you got to sell, you got to buy for 1.6.5 or whatever it is at a minimum.

11:20So, you're still going to have that debt. Unless I basically tend to exchange partial of it and I get them at the pace of thing. I think it's called a boot or something. Yeah, yeah, there's a boot. Yeah, yeah, yeah. It's just, it's, it can get messy. But again, I, not opposed to that strategy. Again, I don't, I don't think there's anything wrong. Um, you know, executing that process. And then if it doesn't close, you just pay the tax man on the delta, right? Whatever that is. Again, I don't, I, I think too many people look at the tax man and like, I'm going to do everything I can to not pay him, including doing a bad deal. It's just like, what are you doing? Um, so yeah, again, I, I'm telling you, when I, when I look at this, you've got cash flow into 26, you've got a break even, you know, you've got the singing in Orange County, you got a couple of in Huntsville. You, the, the problem with the three Alliators, right? You, you scooped a bunch of equity. And you know, all three of them, you know, every month, you're just, you just, just feeding that damn thing. So I, those are the three that I would look to dispositions. And up to your point, they'll sell the fastest,

12:22which gives you immediate opportunity to, to redeploy, right? Buy brand, buy brand new construction or add an ADU or do both. Got that. Yeah, I like, I actually like that advice. Um, yeah, I don't know why it's supposed to be my mind. I was still limiting something to 20 at first. But you're right. I could list both essentially the same time. Yeah. And I have a W2. So there's, you know, if I move out 10 it, it's vacant. You know, I could afford to cover that. Yeah, you're carrying that for a little bit, yeah. And then yet to your point, you know, I, I could put it, if I sell whatever first, I can put it into a intermediary for 10th or exchange. But if I can't find deals, just pay him go Sam. Yeah, there's no, there's, there are worse things than paying taxes. Yeah, I've always had the mindset of, you know, if you can't go say that means you made money, right? Hey, man, yeah, yeah, absolutely. I look forward to the day I cut a million dollar check. Yeah, exactly. Yeah, yeah. So got it. Yeah, I think for me, because you know, everyone that has a portfolio of my size, you have a few that you would sell, right? Sure. So for me, the 26 unit, the 20 unit, the 20 using worse.

13:23So obviously that's easy. You want to sell to your point, not the greatest time. So, you know, I expect to take over a year to sell. The Bay Area Properties as you alluded to, three to six months tops, if I really want to list it. But yeah, I mean, just think about it, just, just like, how much negative are they? Are they like a grand each? Yeah, it's probably averaging about a grand each. Yeah, that's, that's immediately three grand to the good side. Plus you walk away with probably a million bucks, maybe a million five. And that's just going to feel a lot better. Yeah, and I can pay up my primary when my primary is about 5,500 bucks a month mortgage. So there you go. You're a win. You're up, you're up. Sell one and trade one. Got it. I guess my limiting belief is that, you know, as people say, oh, I regret selling. I, I hear it all the time. Yeah, but then, you know, you had a certain point as you alluded to, like year seven eight, which I'm at, a weird inflection point, where like, I know it's not going to prove my quality of life, but losing an alligator as you alluded to,

14:25and paying on my primary, that's going to improve my quality of life. Absolutely. You're going to get so much closer to that in game, right? You've been doing it eight years. You're still in the suck because of the way you've built the, the structure. This is what Cody did, right? Cody built a structure that was, you know, he would tell you that a stiff win went a blown him over. But now he's half the size and he's, you know, he's four knocks. He's just rock solid. I think you let go of these three alligators. You reposition that million, million and a half. Maybe do this, do that and do this. And suddenly you're, suddenly holding that 20 unit doesn't feel as bad. Yeah, that's true. Then I'm not, I don't become a desperate seller, right? No, that's what you want. Man, this thing goes sideways. And then suddenly, you know, you got to let go of that 20 unit. It, you know, it's as somebody greedy like me at 700. That could happen. So I think you, I think you have to, I think you have to focus on the foundation. And to me, it's, that's why that picture's in the first book. You got to get rid of alligators and you've got three.

15:26Yeah, got it. No, that's, that's, that's really insightful to do that. Like you said, I think with one small tweak in my portfolio, it can go from basically break even to, oh, yeah. Plus, yeah, exactly. Yeah, you're just, you're just stuck on these three properties, which have probably been very, very good to you. So I get it. But now it's time to take those chips and redeploy them. I mean, like, like, you just pretend in, you know, six months. All three of those are gone. You've redeployed a million and a half bucks. You got a free and clear primary. You've got a brand new construction in Huntsville. And you've got a down payment on 280 use. You are in much better shape. Yeah, exactly. And that can be like a one year swing, right? This is all these one tolls. And then a year from now, I'm like, oh, shoot. I was cash flow and I'm breathing easy. Exactly. And by the way, rates go down, cap rates go back up. And suddenly, you know, you're selling your 20 unit for one, two instead, you know, you're waiting for the right buyer versus taking anything. Yeah, that, that is a good thought. Because yeah, the single family home market in the Bay Area,

16:27it's, I'd say it's been stagnant. But AI, it has kind of been like training a little back upwards. Yeah, yeah, you got to strike one. I mean, that's the hottest part of your portfolio right now is Bay Area singles. Yeah, yeah, got it, got it. I guess any other advice you would have for my portfolio. So let's just say I got rid of the alligators. Yeah. And then at that point, I would, so, so after the alligators are gone, I do think you need to decide what to do first. Do you do, like, because you've given me three things you want to do, I want to see those as a priority. Do we want to pay off our own, our primary in Orange County? Again, personal preference. If you want to, that, like you and your wife, that's priority one. Make it priority one. Two, do you want to add to 80 you? If that's priority one, make it priority one. And then third one is, you know, Huntsville, right? Do I want to add a new construction across the country? So sit down and figure out which of those three great things you want because they're all great options. But don't be confused, right?

17:28Today, I'm confused which one is the best for you because you haven't, I don't think you know. But I think you have to prioritize that and then make priority one, priority one. And if that's paying off your primary to say 5,500, so be it. All right, don't let anybody else tell you it's a bad idea because you're not them or they aren't you. Just be comfortable with that option. I had, there's nothing wrong with having your primary paid off. I don't think it's great for rentals, generally speaking, unless you're at the very end, but owning a primary free and clear, so you just have that just rock solid security. That's not a bad option. Yeah, I think for me, priority wise, it's probably the 280 use first. And just make that cash flow and then aggressively pay off my primary. But there you go, cash flow. Because I still don't mind working at W2 right now. So list the three houses. And to feel like you're making progress, start working on the ADU plan, getting an architect or whatever the right steps are,

18:28that way you can kind of feel it. Because you know you're going to get that hit of liquidity. So if that's the choice, verify it with the wife, and list the house, list house one, then two, and by the time the second one closes, you've got the capital and start construction. So yeah. Okay, oh, and thank you. Thank you. That was a good breakthrough for me. And there's so obvious sometimes, but you get so emotionally involved in your own plan. Yeah, yeah, you're in it every day. I'm just an outsider who's been there. I mean, I've had similar thoughts and had conversations to help me break through things. So I think you're in a good spot. You've definitely got some cleanup to do. But you know, it's two or three moves and you're your rock solid. So you're good. Yeah, and you're not a bad guy. Can I ask you curious from your drain? Well, it's kind of your pivot for you when you kind of maybe went from my situation to maybe a better cash flow situation. Was this something similar that you went through? Yeah, so for me, it didn't really start until I was let go at 2018, because I was so focused on working till I was 50.

19:29So I never bothered to look at our portfolio. That's what my wife did. And came home from that, went out to dinner, maybe the next day or whatever. She pulled a portfolio and we're like, you know, we wanted to have a dozen or so free and clear. We had two or three apartments that were problems with that had gargantuan equity. So yeah, we sold, what do we sell? We sold cedar and Cambridge. So yeah, we freed up a million and a half, maybe a million eight, I forget. And we paid off a bunch of stuff. And we're like, okay, now it doesn't matter if Zuber doesn't work. Well, we basically, we could survive anything. If they took, if they took all the portfolio that had debt, we still had this massive pile free and clear. So yeah, we did that. That was year 12. It could have been year eight, but I just did it year 12. Okay, got it. So basically, you kind of made a drastic change in about a year time window. Until 18 probably the time of sell multi-family. It was, yeah. In times late. Yeah, well, I wish I sold it in 20. But that's okay. Yeah.

20:29It was a little early. Yeah, you could have gotten probably a half a million dollars more, maybe. Oh, probably more. Yeah, probably a little bit more. Yeah, probably. So that's okay. So basically, you'd practically a year sell it. You basically paid it the same. Yeah, absolutely. A bunch of liquidity at one point and then paid off a bunch. I mean, what's 12 you decided to pay off? Was there like algorithm you had or? No, we basically said what properties when we want our daughter to inherit. That was what we thought, right? Because we took the best, the newest, the best part of town, right? We tried to be strategic looking at the assets we wanted to hand to our daughter. That was the lens we looked at. Okay, got it, got it. Because yeah, you know, even though I'm kind of bagging my portfolio, like just, I guess the optionality of having so many units, you can do almost multiple moves at the same time. But I think for me, I was getting paralyzed by having too many good moves, but I didn't know what the greatest move was. Yeah, I think that's reasonable. Yeah, I think that's fair. Yeah, you got a lot of good options. But now you have a plan.

21:31Yeah, right. Right, so, so, sounds good. All right, cool, Michael. No, I really appreciate that insight. No, absolutely. I want to kind of transition from scale mode into kind of more optimizing and chill mode. Yes. Yeah, you're really close. I mean, a year of this, like we talk in a year. You know, in a year now, all the Bay Area homes are gone. You've got a functioning ADU. You probably have a free and clear house or very close to free and clear house. Dude, you're in a entirely different situation. Yeah, then once again, that situation, I can basically revalid. I want to work. If I don't mind working, I want to continue to scale again. With a stronger foundation this time. Yeah, exactly. There's no reason you can't add a second deck, but you've got to make the foundation deep, right? And right now, if you try to keep going, you're not in a good spot. Yeah. Okay, Mike, no, I really appreciate the insight. Very valuable. Once I saw you offering portfolio reviews, I merely emailed you. Yes. To get it done, because it's super valuable, you know, just hearing your insight

22:31from somebody who crossed the other side of the bridge, I would say. I appreciate it. So thank you so much for that. Yeah, very cool. I am curious. Are you in my school community or no? Not yet. Not yet. Not yet. All right, I'm just curious. All right, buddy, Steven, thank you for being here. Thank you for being vulnerable. Again, this will be posted on YouTube so we can try to help other people at your age. You're amazing. Have a good weekend. Thank you. Thank you so much. President Barack Obama. Virginia, we are counting on you. Republicans want to steal enough seats in Congress to raid the next election and wield unchecked power for two more years. But you can stop them by voting yes by April 21st. Help put our elections back on a level playing field and let voters decide not politicians. Vote yes by April 21st. Paid for by Virginians for fair elections. Been out here all morning. Not a single bite. Guess the fish finally figured it out. Just like Hackers do.

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