The Repeatable “Stack” Method to Buy Rentals Faster (and with Less Money)

One of the most repeatable, scalable ways to build a real estate portfolioYou could still hustle your way into a cash flowing real estate portfolio with upside despite today’s market challenges. You hear me say it over and over. I am long on the Midwest and I think house hacking is the best way to start investing. And if you haven’t heard of the stack method, it still works to exponentially scale within just a few years. And today we’re speaking with an investor who is living proof that all of these strategies can be huge winners in today’s investing climate. Connor Anderson used to work here at BiggerPockets and has since left to build an impressive portfolio in Michigan using the Stack method. He’s progressed from a condo to a single family home and he’s now onto multi-unit properties and is finding both cashflow and future upside despite today’s market conditions. If you’re not familiar with the Stack method or you’re still not convinced about the Great Lakes region, I think this conversation will give you a lot to think about and to consider for your own portfolio. Let’s bring on Connor. Connor Anderson, welcome to the BiggerPockets podcast. Thanks for having me, Dave. I’m excited to be here. I’m excited too. You are joining a growing tradition of former BiggerPockets employees who have become successful real estate investors and come back to join the show and update us on your life. It’s great.I know there’s a couple other people that have done the same thing and I want to just share my story with everyone here.Great. Well, we’ll get to what you’re up to today, but let’s just start with sort of the reasons that you got into investing in the first place. When was that?I remember thinking specifically, I was sitting in my six bedroom house that I was renting with my friends in college and the landlord, they were just kind of a mom and pop. They’d show up once a month, collect checks from us, and they didn’t seem like they were all that special. And I’m like, well, I could do this. And I’m thinking like, all right, they’re collecting 500 bucks per person here. I want to be doing that someday and just patenting my wealth that way.Yeah, it’s a very good thought. I really cringe thinking about how poorly I treated the rental properties I lived in. Oh, college Now as a landlord I’m like, oh my God, how irresponsible wasI? It is funny, I’ve seen those properties that I lived in pop up for sale and my brother’s like, we should buy one of these. And I just think back to how poor have you treated them? And I’m like, absolutely not. I do not want to be on the other side of that.I know the problems in that property. I created them. Correct. We’re avoiding those. Okay, so you’re in college and then how did you go from listening to the podcast interested in real estate to actually investing?Yeah, so graduated college, moved out to Denver and that’s when I ended up with a job at BiggerPockets because I was a big fan of them prior, just kind of connected with Scott Trench and Craig Kla and landed a job there doing advertising sales. But truth be told, I did everything that is advised for new investors to get started in. I cut my expenses to as low as I possibly could to save as much money. So I was renting out my car on two row and then biking 10 miles to work every single day. I was keeping my grocery expenses super-duper low, me spend like 50 bucks a week on groceries. I even used PTO to take a day off of work at BiggerPockets, still kind of collect my salary and then work for my friend’s tent rental company to save up extra cash,Double dipping on BiggerPockets. I was, yes, I mean you’re allowed to.Yeah, so I was doing anything and everything I could to scrape together enough money to buy that first property and house hack with an FHA mortgage. So that’s what I did from probably six to eight months of just absolutely grinding and out saving to buy that first house hack.I feel like I need to ask you to share the story about living in Craig’s house. I know you were saving up a lot of money. Can you tell us about your living arrangement with Craig Kila, who, if you don’t know him, he’s been on the show many times. He wrote a book on house hacking for BiggerPockets.Yeah, so it was a funny story, but Craig and I were good friends and we came up with arrangement that incentivized me to buy property as quickly as possible, but also saved me money. So I moved in with Craig into a second house hack and was paying him $400 a month in rent, but my rent went up $50 a month until I bought a house. So basically he was trying to get me out of there, out of there and into investing as quickly as possible. So it was a fun arrangement that we put together and I think I was there for maybe six or so months.It’s hilarious. A tough love situation. You started at 400, but you’re paying 700 a month. It must be very motivating. That’s pretty high pace of inflation. It’s like 10% a month.Yeah, I have never heard of anyone’s spread going up $50 a month. It’s maybe $50 a year, so I was motivated to get out of there,But it worked.Yeah.Can you tell us a little bit more the numbers about what target price you were looking at for your first deal and how much you needed to save up?Yeah, so I was pre-approved for around two 50 to $280,000 and this was back in late 2018. So with an FHA mortgage, I think I ended up all in told spending about $15,000 out of pocket for the down payment and closing costs on that purchase. And I remember closing on the property, I showed up to the closing table with my mattress strapped to the top of my car. I got made fun of by my real estate agent and my lender, but I was so excited I want to move into that house, but I had maybe $1,500, two grand to my name after that closing, but I was excited toMove in. That’s unbelievable. I have never heard of or seen someone showing up ready to move to a closing table, but I love the enthusiasm. So you also mentioned something that I want to call out, which is that it sounds as like you got pre-approved for your mortgage pretty early on, which is a step I think a lot of people skip when they first get started and spend this time wondering what they’ll qualify for or how much money that they need to save up, but just wanted to recommend to everyone to do what Connor has done If you’re trying to get your first deal because he knew exactly what he was pre-qualified for, you can build a buy box around that and you could set a savings target and sort of back into how long it’s going to take you to buy a goal. So great work there. When you were trying to look for this first deal, did you have a long-term strategy or were you just trying to buy anything that you could afford and sort of make work?So I was really just trying to buy anything that I could afford because Denver was expensive. My income wasn’t crazy high yet, so that $260,000 range is basically all I could afford. And in Denver, that basically meant I could buy a townhouse. So I found a townhouse that was two bedrooms, two and a half bathrooms with an unfinished basement knowing that I could finish out that basement. I lived in the basement bedroom and then I rented out the upstairs bedrooms for about $800 a month and I accomplished the goal I was living for free.Awesome.So yeah, took that pre-approval, worked with what I had and found a property that made sense.Were the roommates that you had random people you just met or you found tenants or they people you knew?No, they were friends. One of ’em was a friend from college who also moved to Denver and the other one was a friend from the gym, but Oh,Awesome.Yeah, I think that’s the best way to get started is finding some friends that are looking to rent.Yeah, it’s such a good way to do it. It makes a lot of sense. So you wound up doing a little bit of value add to that deal though too. You finished out the basement, did you do it yourself or pay someone to do it?A little bit of each. I handled some of the paint and the trim, but I hired out the drywall and the electrical and the carpet.Okay, so that was your condo, you house hacked it. How long did you live there?I was there for about a year and then I moved back to Michigan from Denver to be closer to family and friends and that’s when I bought my next property. But I still own that property today. I’ve had some long-term tenants in there and it still cashflow is a couple hundred dollars a month to this day and it’s gone up quite a bit in value. So that’s been a great first deal for me.Alright. So you left Denver. You moved to Michigan where you’re from, what did you do when you got there?I lived with family and then bought my property in Grand Rapids and I’d ever actually lived in Grand Rapids, but I just knew that it’s the second biggest market in Michigan. It’s quickly grown, it attracts a lot of young people. So I just knew that’s where I wanted to be. So this was the midst of Covid when I was buying this property. I couldn’t actually tour it until I got under contract, so I just one day looked on Zillow, drove by six houses that I thought were interesting to me and ended up writing an offer on one of them and it’s been a fantastic property.You just drove by it and wrote an offer?Yeah, drove by it, wrote an offer, yeah.That’s awesome. In a city that you barely knew.Yeah, I had spent some time there maybe for a day or an afternoon, stuff like that, but I never actually lived there, but I knew it was just where I wanted to beAnd great fundamentals in the market, so that totally makes sense. And how did you afford that? It sounds like you sort of did the hustle thing for the first deal. How did you finance the second one?So finance the second one with a 5% down conventional mortgage, but since I was house hacking for a year, it was very easy to save up that cash. I didn’t have toRentOut my car and never eat out for an entire year. Was able to kind of enjoy some luxuries. You drove to work, it was a lot easier to save up for that second property. My living expenses were so low from house hacking the first time around, so that’s why you get into this, that’s why you house hack because it allows you to slowly build up and save money pretty easily.Awesome. So you found that you moved into it and then just I assume for a little while, focused on building out your agent business.So when I was living in that single family house, I did have roommates for a period of time, but thankfully the mortgage on is so low, it was like $1,400. So with roommates paying five, $600, that covered the vast majority of the cost. But that’s when I really started hitting ground running as a real estate agent in Grand Rapids. So this was May of 2020 that I bought that property for $225,000, gone up quite a bit in value and right now rents for about $2,400 and cash flows pretty well, butAwesomeIn those four and a half, five years. Since then, I’ve become a very successful real estate agent focusing within investors have sold about 150 properties since then, and the main people that I work with are investors just like myself, many of ’em house hackers, some of ’em out of state investors or in-state investors along with helping the family and friends buy their properties as well.That’s great. I’m curious and congratulations on building such a great business, but now that you’ve been an agent there for a long time and the market so well, did you make a good buy on the single family?I did. I completely lucked out. I didn’t know really much about the market other than, hey, this seems like a good spot, but I absolutely love that property. I think I bought in the perfect location. I don’t think I could build a house within a different block. That’s just where I would like to be. So no, I really lucked out.It’s so funny because I know I’m the data person, but intuition goes a long way with these types of things. Even if you’re just driving around, you just get a gut feel of where you want to live because you will get a sense for which places are growing and which places are most aligned with your strategy. So good job on that. Yeah, thank you. Alright, so you bought your condo, you your single family, you’re building an agency business. I want to hear what comes next, but first we got to take a quick break. We’re back with Connor Anderson talking about how he went from house hacking and hustling to having a growing and successful portfolio. Connor, we talked about your deal in Denver, your single family home as your first property in Grand Rapids. What did you do after that one?Yeah, so I bought that property, the single family house in May of 2020 and then became a real estate agent and during that time, quit my job at BiggerPockets and went from W2 to 10 99 and unfortunately I had to wait a couple of years until I was able to buy that next property because financing was no longer easy for me as a 10 99 employee without any sort of track record.Yeah, I’m sure you’re here on the podcast too. People are always talking about whether they should become a real estate agent in this decision. There’s no right or wrong answer I think to this, but the very important component of this is that getting loans as a 10 99 employee, whether you’re an agent or any other type of 10 99 employee is a lot harder. You could do DSCR loans, but those are more expensive. So it’s just something to take in considerationBasically that the lender just needs to see that you have strong, steady income coming in from being a 10 99 employee. In my case, I kind of had a half a year my first taxes, and then I had two full years after that before I was able to buy my next property.And what did you buy?It was 2023, so there was not a ton on the market at the time. Listings were pretty low, so I created my own inventory. I went and basically scoured every single expired listing, withdrawn listing or canceled listing in the area that I wanted to live. That was a duplex or two to four unit property and reached out to every single one of those sellers that had a property that I thought was attractive, got one callback from a guy who had 13 or 14 properties that he was looking to offload. So I picked my favorite one closed on that with an FHA mortgage, used my commission to cover the vast majority of my down payment. It’s actually kind of funny, I collected a check at this closing table. Wait, how so? 3% of my commission cover 3% of the down payment.I had $5,000 in closing costs that I had the seller pay for because there are some work that needed to be done. I closed strategically on the first or second day of the month, so I got that’s the best, all of the rent for that month plus their tenant security deposit, which is, it’s not my money, it’s a tenant money, but it still is money that was credited to me. And then of course I had my earnest money deposit that I paid up front, but I think all Alden told my cash out of pocket to close on that property was like five grand. But I collected a check at the timeOf That’s unbelievable.Yeah, it was a very weird experience. The lenders were confused. I didn’t know what to do.Yeah, I was going to say you’ve been a part of, you just said 150 transactions since. Have you ever seen any other buyer get a check?No. No buyer’s ever pulled that off.Anyone listening, if you’ve had this happen, please let me know. I’m very curious if this is a once in a lifetime thing. So let’s dig into this one because obviously 20 20, 20 23, big shift in market conditions. First of all, if you had looked at an on market deal, was there anything attractive or was going off market and sort of grinding it out? The only way to find something that really made sense?Yeah, just the inventory has been a struggle for the last 5, 6, 7 years. It just is an issue, especially here in Grand Rapids. So there was just not many deals to pick from. There was maybe 10 to 12 listings for multifamily properties on the market compared to right now we’re seeing 40 to 50. So it was slim picking, so I had to kind of go off market to even find something that I would want to live in.Yeah. How much time did that take you?Honestly, I might’ve gotten lucky, but it did not take terribly long. Like I mentioned, I kind of went through all these expired listings, canceled listings, and reached out to probably 20 or so people and got a response within a week.So 20 people in aWeek. But I found the right guy because I bought that property and then built a relationship with him, built some trust with him and he decided to offload his entire portfolio with me that year. So not only did I buy one of his properties off market, I sold in another 11 properties for him that year, which was about 45 million worth of real estate that I sold for him that year.Four to five, not 45, right?Yeah, four to five,Yeah. Okay. Yeah, I was going to say, wow. So we talked a little bit about one of the potential drawbacks of becoming an agent of 10 99, but it sounds like this is one of the real benefits that you’ve experienced by being an agent. Do you think you could have pulled this off if you weren’t an agent yourself, this type of off-market deal finding?I think I could have found the deal, yes, but I definitely would not have been able to build the relationship with that owner and be like, Hey, I want to sell your properties for you if I was not licensed. And I don’t necessarily recommend everyone get licensed if they’re going to be a real estate investor or not. So I kind of don’t recommend you get your real estate license if you’re just going to be an investor.Agreed.But vice versa, if you are a real estate agent and you’re not investing in real estate, you need to start considering that.My advice to people is usually that to be an investor, you just need income, you need a job, I believe, and if being an agent is going to get you a lot of income that you can use to invest, great. If you have another job that’s going to make you more money, probably just stay there and then invest the money that you have there. But geez, there’s obviously trade-offs.Yep, absolutely.So it’s interesting about your story, Connor, is that you sort of have gone in this slowly escalating path, right? You started with a townhouse, then you went to a single family home. Did you purposely then go to a duplex, try and start to get some scale in terms of number of units?Yeah, honestly, I just kind of took the cars that I was dealt and when I was looking to buy bought opportunities that I thought would make sense. And when I first started investing, all I could really afford was the townhouse. When I bought the second property, there wasn’t really any duplexes available this next time around was able to find ’em off the family property that made sense. And for the fourth deal I was able to buy something even bigger. So I’ve just kind of been taken advantage of what was out there in front of me and available at any given time.Well, I want to talk about the bigger thing too in just a minute, butI want to call out that Brandon Turner, former host of this podcast has this concept of the stack method where he advises people to buy in your first year, buy a single family, and then in your second year or your second deal, even if it takes you more than another year, go buy a duplex, then the following year do a fourplex. And you’ve sort of embodied that. I think it’s a great strategy. I personally like getting to that fourplex, sixplex apex. You don’t necessarily need to get into these huge multifamilies in my opinion, but I really think for people starting it is a good mindset to have. And it sounds like you just did that sort of naturally.Yeah, absolutely.Alright, so tell us about the duplex. You got paid to buy this duplex somehow. I assume you moved into it and house hacked and then was it cash flowing? Did you have to do any work to it?Yeah, so this duplex is a three bed, two bath each side and there’s not very many side by side, three bed, two bath duplexes in this portion of town. So I knew it was a very rare opportunity that I wanted to take advantage of. One side was pretty nice, it had some great tennis in there. The other side was gross, had just kind of some guys that worked at bars late nights. One was a drummer and there was just always empty beer cans and cigarettes being smoked on the front porch. So when I got in there I had to do a ton of renovations. Basically I did everything but take it down to the stud. So I did all brand new electrical because there was knob and tub in there, did all new plumbing because there’s lots of galvanized plumbing in there, all new flooring, all new paint. The kitchen we ripped out because the cabinets were so gross and stained from their cooking or whatever, they just cannot be salvaged. And then the bathrooms had to reglaze the showers because they were just moldy beyond belief and could not be cleaned up. So did everything to that property that you basically can. And the way that I paid for that was with a HELOC that I took out on my old primary residence, that single family house before I moved out of it.Oh, nice.I took a HELOC on that and used that for the renovation costs on the duplex.How much did you budget for the renovation? Did you hit the target?I was budgeting like 40 to $45,000. I think it came in at about $50,000, had one hiccup with the city. The city made me basically reinstall the electrical service. It was too close to a set of stairs, so that was annoying. That cost me about three grand and then it added air conditioning as well in the summer months, and that boosted up the budget a little bit, but made it a heck of a lot nicer to live in.Okay, great. And then when you leased it up, were you able to get the rents that you were expecting?Yeah, I got a little bit higher rent the first go around, so I’ve had a couple different tenants now on that property and been getting between 1,920 $100 a month in rent for each side. So it is renting for at or just above the 1% rule I bought for four 10.Oh, that’s amazing. Okay, so four 10, but you had a total of four 60 in it by the end. Yep. All right, great. And now is it cashflowing?It does cashflow. The mortgage payment, including the HELOC, is about $3,200 a month and then getting rents of two grand, each side is four grand a month, so tossing about $300, $400 a side for vacancy to repairs. The cashflow is two to $300 a month.That’s awesome. That’s great. And sounds like a really good deal. I assume it’s in a good part of town and that you think it’s got some long-term potential.Yeah, it’s in a neighborhood called Heritage Hill in Grand Rapids and it’s super close to the Wealthy suit district, which has all the coffee shops, the restaurants, the cocktail bars, just the places that young professionals oftentimes want to be.And so what was the experience like doing your first, it sounds like a big renovation project.It was somewhat stressful because I was doing this, I mean, while living in the property, sometimes during the renovation, I was actually living there, so living in a construction zone, is that fun. I hired out a good portion of the work, so all the electrical, all the plumbing refinishing, the floors and the carpet I hired out. But I was doing all the painting. My dad and I did installed the kitchen, so I was there basically every single day with some help for my family, putting together this property while also selling a number of properties and getting constant phone calls from my buyers, my sellers. It was a lot of work. Took about three months to do the renovation and I’m very happy that I did it.Cool. Well that sounds great. You alluded earlier to buying a even bigger property, which I want to hear about, but first we got to take a quick break, stick with us. We’re back with Connor Anderson on the BiggerPockets podcast talking about how he has built a successful portfolio starting before the pandemic, but has continued to grow even in the higher interest rate era. He bought a duplex, renovated it. Connor, what’d you do after that?So was in that duplex for about a year and a half, and then just recently bought a four unit property that I am also house hacking. So house hacks in a row, right? Yeah,Over five or six years.Started in December, 2018 and yeah, this last one was purchased December of 2024. So yeah, six years to buy four properties.Awesome. Great. So tell us a little bit about the deal. What did it look like? How’d you finance it?Yep, so this deal was, it was listed on the market. It was a four unit, about a mile to the hospitals here in Grand Rapids. And it was originally listed at $630,000, which I just thought was a very high price. I’m paying attention to the market all day every day for myself and for my clients. And I’m like, that’s just too high. So waited for probably 30 to 40 days on market before I finally wrote an offer on it and use 5% down conventional financing to buy this with the owner occupant for $580,000. Wow, okay,That’s great. Are you doing another big renovation or how’s the condition of the property right now?Yep, so they’re all two bedroom, one bath units and thankfully the previous owner did a fantastic job of renovating the property to the point where it’s completely turnkey. The only thing I plan on doing to the property is when tenants turn over just going from green paint to some other nice color. But yeah, it’s really just going to be paint and maybe carpet whenever tenants move out, but it’s as turnkey as it can get.Oh, that’s awesome. So you’re up to eight units now?Correct.That’s great. And do you have a strategy for where you want to take your portfolio from here?I think I just want to continue to slowly grow and thankfully since I have been able to build up a sizable portfolio and make an income as a real estate agent, I think can kind of have that more exponential type growth. But my next property, I want to start trying the short term rental space mainly because I just want to have second homes in different parts of the country that I can take advantage of. Of course you do. EveryoneDoes. It’s awesome.That sounds fantastic.Yeah,But no, I closed on this property less than two months ago. I haven’t had my first mortgage payment, so I don’t have a dialed in plan of exactly what’s going to be next, but I think I might dabble in the short-term rental space next.We’ve interviewed a lot of people on the show who started before the pandemic and things have definitely changed. I’m curious what gives you the confidence and the ability to find deals and keep wanting to invest even in a different era of real estate investing?Yeah, I mean there’s just two things that I pay attention to when analyzing a deal and that’s how much will it rent for and what’s my mortgage payment. And as long as I can have a healthy enough spread between those two numbers, I think it’s going to be a good long-term deal. So for this four unit that I bought, I know that hey, market rents are going to be about $1,500 per unit, so that’s $6,000 of rent coming in and the mortgage payment on it is right around 4,800 to five grand. So I have a thousand dollars of spread there that I can kind of make sure that I am a float on that property for a very, very long period of time. There might be some years where $800 of that difference is going towards vacancy repairs and only $200 of it is cashflow on a monthly basis, but there’ll be other years where maybe it’s the opposite and only $200 of expenses I average on a monthly basis and $800 is cashflow. So that’s really all I look for is just build a nice spread between rent and the monthly payment.And you’ve done this by entirely house hacking and people who listen to the show know that I am long on the Midwest. I think affordability is a really good important metric. Is it possible to generate cashflow in Grand Rapids or in other markets in Michigan where you operate if you’re not house hacking right now?There definitely is the ability to create cashflow. Is it as good as the cashflow that we saw in years where the interest rates were three, four or 5%? No, but I think with getting creative and also, especially if you’re managing your own property, yes it is definitely possible to cashflow rental properties. One way that I have gotten creative is I did a two one interest rate buy down on this property, which I’m not sure if you’ve talked about in this show, but basically I got the seller to pay upfront concessions to where my interest rate on the property for the first year is 2% lower than the current interest rate. The next year is 1% lower, and then after that it’s the seven and half percent interest rate that I got on the mortgage. But that allows me to kind of do two things and it’s increased rents over that period of time and also maybe pull off a refinance if rates do come down. So I think that is another potential option for people out there that are looking to create their own cashflow in this market.Can I ask you what it costs to do that too onIt’s about two point a half percent seller paid concessions. And what was the purchase price? $580,000.So it was like 11 grand or something?Yeah, something like that. Yeah.Well, Connor, congrats on building the successful portfolio. It sounds like you’ve done well both as an investor and as an agent, which is great to see for our former employees at BiggerPockets. We appreciate it. Is there anything else you think, either as an investor or an agent you think our audience should know maybe about investing in the Midwest right now? We do get a lot of questions about that.Yeah, I think the Midwest is a fantastic place to invest in. I don’t know everything there is to know about other cities in the Midwest, but I know a lot about Grand Rapids specifically. The two biggest things that I look at are supply and demand. I know you’re always talking about this, Dave, but there is a lot of demand for housing in Grand Rapids in the Midwest because it’s affordable. The average price point in the city of Grand Rapids is about $380,000, which is below the average sales price in the country. So it’s an affordable place to live. And because it is an affordable place to live, there’s lots of demandOn the inverse. There’s not a ton of supply in my county here in West Michigan, they do a study and the study showed that we need 35,000 more units of housing in Kent County to meet the demand that there is over the next five years. And last year they built two or 3000 units of housing in Kent County. So there’s still going to be a continued of shortage of housing in Grand Rapids and Kent County specifically. So I feel pretty confident that with those two metrics, prices will go up, rent will go up, and it’ll be a great place to invest.Yeah, that’s a great analysis and I just want everyone to think about that. Obviously I say the Midwest is a very big area, not everywhere in the Midwest is a good place to invest. In fact, most places probably aren’t. But I just think there are cities like what Connor is mentioning here that have really strong fundamentals and are relatively affordable. Doing that type of analysis, whether it’s in the Midwest or anywhere else, is exactly what you should be thinking about figuring out if there’s going to be sufficient demand to fill your rental properties, if there is going to be a good balance between supply and demand so that prices and rent keep moving up modestly. They don’t have to be amazing, but moving up near the pace of inflation, doing something a little bit better than that, that’s what we need to be looking for as investors. So Connor, again, congrats man. It’s great to see you, and thanks so much for joining us today. Thank you, Dave. And thank you all so much for listening to this episode of the BiggerPockets Podcast. We’ll see you soon.