These “Small” Rentals Boast BIG Cash Flow (Even at 7% Rates)

Think today’s mortgage rates are stopping youThis investor bought 11 units, almost all of which have 7% interest rates and he’s still producing cashflow. So if you’re sitting around waiting for rates drop before you buy an investment property, you’re probably wasting your time. Instead, you could be in the game building equity and moving closer to financial freedom every day. Today’s guest is living proof that it’s possible right now. Hey everyone. I’m Dave Meyer, head of Real Estate Investing at BiggerPockets. I’ve been buying rental properties for 15 years now, and on this podcast we teach you how to achieve financial freedom through real estate. Today on the show we have the story of an investor who seems well on his way to achieving financial freedom himself. Justin Albrecht bought his first property in his hometown of Kalamazoo, Michigan at the end of 2022. Since then, he’s been able to cut his own living expenses to almost zero, and he’s built a portfolio of four properties totaling 11 units.And the cool thing is that Justin’s not doing anything crazy. He’s just patiently buying one house per year, sometimes putting as little as $16,000 down at a time. He’s also adding value to his properties by renovating them even though he doesn’t have some fancy construction background. And this is the exact investing formula I talk about all the time on this show. Justin is building equity that will compound over the coming years and that should enable him to replace his entire income with passive real estate cashflow within the next decade. So let’s bring him on and hear how he got started and how you can too. Justin, welcome to the BiggerPockets podcast. Thanks so much for being here.Thanks for having me, Dave. This is awesome.Tell me a little bit about yourself. Who are you, where are you from and how’d you get into real estate?My name’s Justin Alberg. I’m 30 years old, grew up in small town Michigan and because I was from a small town, stayed local through college, I decided to get a job in tech sales from a global IT solutions provider, and I moved out to Chicago, Illinois. COVID kind of brought me back abruptly, so I started my home search and end of 2022. The housing market was pretty competitive and so when I started looking for single family houses, I was outbid every single time. Not even competitive. People were offering over asking price for every single house. And of course I didn’t have the funds to make that happen, so I actually looked at multifamily housing. That’s when I started running the numbers of, oh hey, we can actually have half or more of the mortgage covered by a tenant living in the other part of the house. And ultimately I ended up landing a house built in 1900, a very old Victorian style house that as you can imagine, it’s been split up a million different ways through different ownership throughout the years. And I don’t pride myself on finding home run deals. This certainly wasn’t one of them, but it allowed me to get my foot in the door through my very first acquisition.I’m very familiar with these cut up in Victorian 19 hundreds. That’s how I got started as well. They can make good deals, but man, the maintenance is an interesting element to it. I love that you’re saying that this isn’t a home run deal and honestly I think that’s totally fine. We’ll hear more about the numbers, but for first time investors, the goal is not to hit a home run. The goal is to get into the business and learn a little bit. It sounds like forgive the goal maybe at that point was just to even find somewhere to live to move out of your mom’s house. But I’m curious, did the property management element of buying a multifamily instead of a single family home intimidate you or give you pause at anyPoint? It certainly did. Yeah. I quickly began a plethora of Google searches of how to make this happen and how to do it the right way. I came from no experience and it certainly wasn’t the plan going into my home search, but I found BiggerPockets fairly quickly actually, thankfully, and you guys had so much information out there of how to be a landlord, how to do things the right way. He had documents available for leases, move-in checklists, all of that. That actually quickly built my confidence in becoming a landlord and kind of squashed a lot of the hesitations that I originally had.Well, I’m glad to hear that we were able to help you get over the hump. That’s what we’re here for. How did it go? Can you tell us maybe just some of the numbers, what’d you buy it for? What kind of neighborhood was it in? Give us some details about the property you bought.So I originally bought this house in Kalamazoo, Michigan for $255,000. Like I said, it was a four unit house. I bought it at the end of December of 2022. So the first year in 2023, I put $15,000 into renovations and the following year I also put $15,000 into renovations when tenants would move out, that’s when I would fix up the place and then re-rent for a greater rent.How did you finance it originally?I financed it with the FHA 2 0 3 K loan, so I leveraged the three and a half percent down the 2 0 3 K loan. There was about 10 K in renovations because there was an unfinished kitchen and an unfinished bathroom. So that 10 K that was actually built into the loan via the 2 0 3 K portion of that loan, that was done prior to me moving in.And were the other three units occupied?They were occupied, yes.And what was it like inheriting tenants? Because that’s a question we get a lot on this show, and I think especially if you’re moving into it, it’s an intimidating thing. You want to know the people who not are only going to be your tenants and residents, but also your neighbors. So what was that like?It was actually great Western Michigan University being close. It is kind of student housing centric. So actually all of the at tenant that were there were roughly my age and they were super nice. They had lived there for multiple years prior to me buying the house. So they knew the house better than I did when I moved in. And establishing a good relationship with them quickly led to just finding the quirks, any renovations or repairs that needed to happen right away, it led to a good relationship.I’m glad to hear that because a lot of people hear this idea of house hacking like you were doing and understand the financial benefits, but get hung up on the idea of living next to the residents and tenants that are part of your business. So I’m glad to hear that because I want just everyone in the audience to remember and know that these situations more often than not actually do work out, at least in my experience. There’s no data about that, but as Justin can attest to, and I can as well, it actually can be a benefit if you get to know and be in your property because you’ll learn a lot about it and you also get to learn to be a good property manager at the same time. So Justin, tell us a little bit about the numbers because you said at the beginning you got into multifamily investing and purchasing because the financials just didn’t work with a single family home. How much were you actually paying out of pocket to live in this property or were your tenants covering your entire mortgage?My mortgage payment after the income that was coming in from the tenants paying rent was only $400.Wow.And I thought that was awesome. I’m like, if I can get a $255,000 house and pay $400 a month with room to grow as repairs and renovations happen to me, that was awesome. I was sold. I was like, let’s do this. How do we do this again and again?I mean, that is amazing. And I think something for everyone to remember here is that if you are house hacking, the whole goal is not necessarily to cashflow. If you can get positive cashflow, great, that’s difficult in a lot of markets these days. But if you can just lower your total cost of living, that’s going to greatly set you up financially for the rest of your investing career. Now, you were probably, I don’t know if you were paying your mom rent, so your cost of living was sort of inevitably probably going to go up, but by going only up by $400 is great. And that doesn’t even factor in the other ways that you’re making money from real estate. Just by paying down your mortgage every single month, you’re earning money because you’re paying down what you owe the bank. And I would imagine that’s probably close to 400 bucks a month minimum. So you’re probably at least coming out, even if not ahead every single month, and you get all the tax advantages, you get that appreciation upside as well. So you’re being humble and modest saying that this isn’t a home run. But I think starting from zero and getting a deal like that is a fantastic first step into real estate.It was great for me. I knew that the house needed work. That was the expectation going into it. And if I only had to cover $400 a month in the mortgage, then the rest of that money or additional money could all go towards repairs that I was kind of expecting anyway. So it actually helped cover a lot of the work that needed to be done to the house. And it wasn’t ton, it was more so stuff that I could do myself. It was flooring. I did do a kitchen remodel, which I bought cabinets and stuff off Facebook marketplace. So I was pretty savvy in terms of buying things that still looked good but weren’t going to break the bank.This sounds like a classic great house hack. This is an excellent first step into real estate investing from a financial perspective. Let me ask you about the time perspective too, though. You’re working a full-time job, you have other stuff to do. Was becoming a property manager and a landlord a burden for you? Time-wise?It definitely took more time than I expected.Says every landlord ever,And I generally joke, but I’m serious when I say I tend to do things the hard way for some reason, especially when I first start off. So doing the renovations, working at a cardboard box, trying to work while there’s renovations going on was absolutely a thing that definitely happened. And I would be lying if I said it wasn’t a little distracting, but at this point it was my first house. I’m super excited to fix it up, make it myself. So I was super excited. I didn’t care about the time or even some of the extra man hours I had to put into it.Very cool. Well, hats off to you. This is a perfect example of how to get creative to get into real estate. You put in a little bit of elbow grease, you find a way to finance a low down payment. You find a way to get money from a two or three K loan to put in the renovations. You do some of the work yourself. I know you are not wanting to call it a home run. Maybe the finances aren’t as crazy as some of the things that you hear on social media, but this for our audience, people listening, this is a good deal, this is a good real estate deal. And if you’re thinking about how can you get into real estate, this is a very good example and template that I think many people could follow. I want to hear what you did after this first deal, but we do have to take a quick break. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m here with investor Justin Albrecht. Before the break, we talked about Justin’s first deal, a house hack that he did in Kalamazoo, Michigan, bought a four unit, moved into one, fixed it up a little bit. That was at the end of 2022, right? What have you been doing sinceSo quickly after that? In August of 2023, I bought my first investment property. I bought a duplex, another fixer upper for $126,000, and that was leveraging a true investor conventional mortgage loan. So I had to put 25% down, which ended up being $37,000. At this point, I had listened to hours of BiggerPockets community. I think I was within the 1% listeners on Spotify at this point. So when I was looking at the numbers of this new duplex, putting 25% down on this property, my mortgage ended up coming out to be about less than a thousand dollars. I think it’s 9 75 and running the numbers. I knew that I could get about $2,000 per month in rent. The kicker on this property was that it came to the extra lot next door.Oh, what?Yes. So it’s kind of a buffer in my eyes where if this really hits the fan, I can parcel this off and sell the extra lot for about $15,000 and cover any unexpected expense that comes my way. So to me, it was kind of a safe bet where all I have to do is completely gut this whole house and then I’ll have about almost a thousand dollars in cashflow perMonth. All I have to do is just rebuild this house from scratch. That sounds like a lot of work.So I didn’t have to take it down to the studs or anything, but I did all new flooring, all new paint, new kitchens and new bathrooms. That actually happened over time. It didn’t all happen right away. The really cool thing about this property that I would tell anybody on the street is that my sister moved in the weekend after I closed on it. Her apartment lease ended on a Friday, and then that whole weekend my brother and I ripped out all of the gross carpet we painted and mudded the whole house. There was a lot of cracking. There was chipped paint, there was a lot of this. So we got this place pretty much move in ready in a weekend for my sister to move in.How much did it cost you, Justin, to get the property rentable? Because you said you put 37,000 down. How much more did you have to come out of pocket to bring things up to parThroughout the year of 2023 and then into 2024? I’ve put about $22,000 into the house.And this is all coming from savings, personal savings.It is coming from my W2 career and savings from living with my mom. So it was a combination of income coming in and savings that I had.So you did that first one for your sister. Did you just move on to the next unit right away? Was it vacant?So it took me a total of nine months to complete the second unit. And the only reason why I did was because after I had gotten my sister’s unit renovated or livable, I went back to my first property that I was still living in and renovated one of the other units when that person moved out. And that took me about three months.And how’s it performing now?I got that second unit rented in September of 2024. I feel like it was a very pivotal moment in my investing career because it was at this point that pretty much canceled out all of my living expenses.Nice.At that point, I was making $1,900 a month in rent.That was your gross income, right? 1900 bucks in rent. And then after expenses, how much did that come out to cashflow?It was about $700. Wow. Yeah, total lawn care, water, sewer, trash, vacancy repairs, all of that came out to about$1,200. So back of the envelope, you had $700 a month in cashflow times 12, that’s like 8,400 bucks a year. You said that you invested all in down payment, plus your renovation cost was about $60,000. And I’ll just pull out my calculator here. That is a 14% return on equity, which is a really fantastic deal. I mean, if you can find that in today’s market in 2022, that is a absolute home run deal.That’s good to hear from you, Dave. That means a lot. I question a lot of things as I am covered in drywall and paint sometimes. So it is good to hear from you that I’m on the right track.Well, again, super cool. Second deal. I want to hear what you’re up to now, but we do have to take one more quick break. Stick with us. Welcome back to the BiggerPockets podcast. I’m Dave Meyer here with investor Justin Alre, talking about how he’s building a small but mighty portfolio in Kalamazoo, Michigan. We’ve heard about your four unit house hack. We’ve heard about your two unit. Have you done anything since then, Justin?At this point, it’s coming up towards the end of 2024. So I had owned my duplex for about a year at this point, which means I qualify to move into another personal residence and would qualify for another personal mortgage. So this is where I actually found a realtor on BiggerPockets and he was an investor himself. We’re pretty good buddies. I would say at this point, and this is where we kind of took, I’d say a different approach into looking at the numbers, I became more mathematical and overall just felt more and more confident moving into the next deal. And it was in September of 2024, I bought a turnkey property.Oh, nice.It was a triplex, another Victorian style house that’s 120 years old, but this one was turnkey. I bought it from somebody who had owned the place for 30 years and they took immaculate care of this house. Within that triplex, there was a three bedroom, a two bedroom, and a one bedroom. So I moved into a turnkey property that was fixed up, renovated, good to go, and I was paying $500 of the mortgage with room to grow.What made you turn to a turnkey property? Sometimes people are open to whatever best deal that they can find, or sometimes people say, I don’t want to do a renovation again, which is totally reasonable. How did you come to decide on buying a turnkey after doing two value add investments?At this point, I was ready to not get into another handful year’s worth of renovations. We ended up buying this $289,000 property for only $16,000 down.Wow. Wait,How a 5% loan and seller credits.Oh, seller credits. Okay. That’s awesome.So there was a little bit of work that needed to be done. Not really. We just called it out during the negotiations, after the home inspection and with the appraisal with the home inspector, the closing costs and everything, I put $16,000 down into this property.That’s awesome. I mean, that’s an amazing deal. And being able to pick up what sounds like a really high quality asset for that little down is fantastic. But I want to call out how you pivoted your strategy based on your lifestyle and what is sustainable for you, because it is pretty common, I think, for real estate investors to assume that you have to either do renovations for every property that you do, or once you pick some strategy or tactical approach that worked for you that you have to keep doing that. But Justin, I’ve done the same thing and my own investing. Sometimes I have more time in my life and I’m like, I’m willing to take on a bigger project right now, or there’s such a good deal that you’re like, I really need to do this one because it would be silly to walk away.But there have been other times in my life where I’m really busy and I will target turnkey deals or stabilize deals because that’s just what is going to allow me to scale at that time. And it’s not necessarily always about trying to maximize your return on investment. It’s about making one step forward. And if your lifestyle means that you can only do that by buying a turnkey property, that’s totally fine. Now, Justin, it sounds like you got the best of both worlds. You got a Turkey property and it wasn’t additional money. But even for me, I am frequently willing to accept a slightly lower return on my investment if I don’t have to do any work. And maybe that means I’m not going to have a grand slam on every single deal, but every deal I do still keeps me moving closer to my financial goals, and I’m totally okay with that. It’s better than putting yourself in a situation where you might buy a deal and not be able to put the time or money or effort that it requires to make that deal successful. And to me, that’s actually a worse idea and is going to actually be a lot riskier. So just want to commend you for having that self-awareness to figure out what works for you and your lifestyle. So you moved in. Which one did you pick? The one bed, the two bed, the three bed.I picked the one bed because it was worth the less. So I wanted to minimize my expenses while gaining the most amount of rent that I could. So I picked the smallest of the units and it just worked out that way because that’s the first lease that was up. So it worked out really well anyway. And honestly, that’s one I would’ve picked anyway because I could have gotten more rent for the other two units.Well, that’s great. And how has the performance been since you bought that? I mean less than a year ago, but how’s it been?Good. The only thing I’ve really had to do to it is trim some trees that are hanging over the house. There’s been a couple broken dishwashers that I’ve had to call a repairman to, but it really was a low maintenance property with upside. There’s actually room for rent growth in that property. There’s room for rent growth in all of my properties at this point. But at the same time, I wanted to, in my eyes, minimize the risk of having vacancy at this point. So I kept the rents the same. I tried to work with all of the tenants to keep them there so that less money out of my pocket while also maintaining good relations with the tenants that were there. That was a huge win-win for me.Well, you are wise beyond your level of investing experience, Justin. I think a lot of investors learned the hard way that vacancy really crushes deals. When you have a good tenant, someone who’s paying and likes living in the property, it is worth keeping them happy, keeping them in the property because vacancies can really hurt you and they’re often worse than it is just keeping rents the same or having a more modest rent increase. So appreciate your approach there. Alright, so we’ve tracked you to nine units. That’s all in just three years, which is incredible. Congratulations. Is there anything else in your portfolio now?So ever since I bought the move in ready property, I was kind of anxious to do something else, and I ended up actually just last week buying a fixer upper duplex that I’m going to move into as my third house hack.Oh wow. Cool. And how’d you find that one?I have found this one just like I found all of the other ones. And that’s just on the MLS. Good old fashioned Zillow.Love it. So Justin, you started investing in 2022 and rates went higher, and I think some people think that it’s not possible to find good deals now. So you found great deals. Can you tell us what the rates are on your mortgages?Yes, I can. The first quadplex that I bought, my mortgage rate was 5.7%, and that was at the end of 2022.Pretty good.I have nothing but great things to say on my lender. He was awesome. But the rest of my mortgage rates were 7.125%.Oh, wow. Okay. So just showing, I mean, not a bad rate for the last couple of years. It’s basically what everyone’s getting, but just showing that you can find cashflow and good deals even when your rates are in the five, six or even sevens. So now that you’ve done this, super impressive, congratulations on all your success so far. You joked at the beginning saying you’re an accidental investor, which happens to a lot of people, but you now seem to be doing this pretty deliberately. What goals are you working towards?The goals that I would say I’m working to would probably be about a nice round $5,000 a month in cashflow. I estimate I need about six to seven properties to get there. Right now I’m just trying to stabilize this last property. The last duplex that I’ve just recently bought is going to take a long time to fix up. There’s going to be my biggest renovation projects to date.So the pendulum is swung back. You did, you tried the turnkey and now you’re just going to take a big swing again.Yeah, I was bored with the turnkey. I needed to do something. I was under contract looking on Zillow for additional properties. I’m like, I need something to focus my energy on.Yeah, you’re learning your style. That’s good.Yeah, so it was about a year later that I just closed on this duplex. It’s going to be new kitchens, new bathrooms. There is some flooring that needs to be leveled out that I’m currently in the process of having quoted slash looking on YouTube to figuring out how to do it in a safe but cost-effective way. But yeah, it’s going to be the third house hack. The margins are going to be similar to the other duplex that I had as investment property. So my mortgage is about $1,050 per month. And I think when I’m all said and done, well, if it was totally rented, I would expect $2,000 a month in cashflow. But since I’m moving in, I’m going to rent out the other unit for about a thousand dollars a month. Wow. So that should pretty much pay for the entire mortgage while I live there.Very cool. That’s amazing. And I love the goal. $5,000 a month in passive cashflow, life-changing amount of money. Do you plan to keep working once you hit that? Is that like a fire number or do you like your W2? What’s the plan on that side of things?So Dave, you’re catching me at a very interesting point in my life. Did you just quit your job? I put in my two weeks on Monday. So about two daysAgo. Seriously, like three daysAgo I did. Yeah, I did. Yes.Wow.And it’s not the expectation that I’m going to live off my cashflow. I understand that that is not feasible at this point in time, but I love doing these renovations on the house. So I’ve built up a solid amount of cash reserves where I’m going to do a lot of these renovations myself over the next few months. And then when I get closer to stabilizing that property, I’ll find another job.Was it just not satisfied with this job and want to take a little break?Yes. It was a high stress, fast paced sales career in the technology industry where if anyone’s in the technology industry, you know that if things are going right, you get no credit. That’s how it’s supposed to go. But if things go wrong, everybody’s barking up your tree wondering what the heck’s going on and the world’s on fire.And that happened pretty much every day. So it’s a terrifying moment. I will admit that because I’ve been doing that career for about eight years now. But what I’ve realized, and I didn’t know what exactly what I wanted to do growing up and over the last few years of investing, I’ve pretty happily found a passion fixing up managing tenants and managing the property that this is what I want to do in some way, shape, or form. So I’m going to spend the next few months renovating this place and then find a different job, even if it’s not a dream career moving forward. Because I feel like my dream job slash career is managing my rental portfolio. So there’s less stress finding that next dream job because I don’t need to find the next dream job because that’s awesome. My expenses are low, and then when this last duplex gets renovated, I will have cashflow coming in that’s going to help minimize the cash that I actually need to live and support my lifestyle. So it’s pretty cool.I love that it speaks so well to the flexibility that real estate investing offers you. A lot of people talk about fire financial independence, retire early, but you don’t actually need to retire early. Real estate investing if you do similar things to what Justin has done, allows you to have a lot of flexibility. Maybe you do want to retire early, or maybe you want to work part-time, or you want to work in a less stressful job, or you want to be able to take six months off and just work on a property and not have to worry that much about getting a new job immediately. I think as a community, a real estate investing community, BiggerPockets community, we should celebrate those wins as much as possible because for some people, I don’t personally want to retire early, but I love the idea of having the flexibility to take some time off if I needed to and do stuff like what Justin’s talking about. So I love that you’re just figuring out a way to make real estate work for you, your personal goals, your lifestyles, the things that you like, and not just following the goals of other people that you hear either on this podcast or on social media or whatever. The whole point of real estate is to make your life and your lifestyle better. And Justin, congrats on finding a way to do that for yourself.Thank you. I appreciate that, Dave.Absolutely. And thank you all so much for listening to this episode of the BiggerPockets podcast. We’ll see you next time. If you want to share your story like Justin just did, don’t forget you can apply to be a guest on the BiggerPockets podcast. Just go to biggerpockets.com/guest. That’s biggerpockets.com/guest.