The Most Boring Way to Get Rich with Rentals

This is the most boring way to get rich with rentals. It’s not flashy, it’s not sexy, but it works—and it doesn’t even take that long to pull off. You don’t need to have hundreds of thousands of dollars saved up, investing experience, or dozens of rental properties. In fact, you can build over a million dollars in wealth with just four to five properties: no big apartment complexes, no complicated strategies, no sketchy financing. That’s what we’re all after, right? Boring ways to build wealth. We want consistent five and six-figure cash flow hitting our bank accounts every year with millions in equity. But if it’s so boring and easily accessible, why isn’t everyone doing it? Well, that’s where many Americans are wrong—thousands of real estate investors are using this same strategy to slowly and steadily build wealth without the stress of scaling a huge real estate portfolio. Dave has done it, dozens of top investors we’ve interviewed on the show have done it, and now you can, too—even if you’re starting from square one. This is the boring way to build wealth with real estate. In This Episode We Cover The most boring real estate investing strategy to become a millionaire How to get into your first investment property with significantly less than you think The best beginner rental properties to buy with value-add potential (increase equity!) Full math of how just a handful of rentals can become over a million dollars in equity (and $90K+/year cash flow!) How to use your home equity to invest so you can recycle your money The simple, beginner-friendly value-add renovations that can boost home value by $10K+ And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠h⁠ttps://www.biggerpockets.com/blog/real-estate-1260 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[email protected]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Dave Meyer?

  This is the most boring way to get rich with rentals. It is not flashy, it's not sexy, but it really works. And it actually doesn't even take that long. In fact, this might be one of the quickest episodes we've done just because of how easy this strategy is to explain. And the good thing is that it works for people who have never owned a property and it works for those who own entire portfolios. The reality is that anyone, yes, even you, watching or listening to this right now, can copy the same steps I'm going to outline to build wealth through real estate. I'll walk through each step and I'll show you the math behind how this under the radar,

• 0:42Dave Meyer?

  boring investing strategy turns average Americans into millionaires. I know, it does sound almost too good to be true, but savvy investors have been using this strategy for decades. This is the most boring way to get rich with rentals.

• 1:03Dave Meyer?

  Hey everyone, welcome to the BiggerPockets Podcast. I'm Dave Meyer, Chief Investment Officer at BiggerPockets. And today we're talking about one of my favorite strategies and one of my fundamental beliefs about investing in real estate, which is that boring is better. I'm going to lay it out for you and stay with me because before you decide that it's overly simple, or this is not something that you can achieve, I'm also going to share with you and I'm actually going to walk you through steps and examples about how most average people, average Americans can actually pull this off. So here it is. Buy a house every two to three years, move into it, fix it up a little bit, move out and repeat that four to five times.

• 1:47Dave Meyer?

  I know it might not sound that impressive compared to these influencers claiming that they own thousands of units, most of them don't by the way, but that actually doesn't even matter because you don't need to own that many. This simple, boring approach can make you a millionaire. And yes, this is true even if you don't know where you're going to get money for four or five different properties, because stick with me, I'm going to explain how all you really need to do is save up 3.5% for your first property and the process will take over from there. I have had the privilege of interviewing hundreds of investors. And I promise you, this is the most common path to success in real estate investing. You don't need fancy financing.

• 2:32Dave Meyer?

  You don't need giant deals. You don't need to take on big risks. This strategy generates cash flow, builds equity and has massive tax benefits, all for low money down. So let's just talk then about this. Why does this boring strategy work? Well, moving into an investment property, because that's the key thing we're talking about here. Not just going out and buying rental properties. You're buying one at a time and actually moving into them. Moving into an investment property is commonly known as house hacking. And the reason it's so powerful and so different from other approaches is that it unlocks the power of owner occupied financing. This allows you to put less money down. It allows you to get better interest rates.

• 3:16Dave Meyer?

  It allows you to even finance some of your repairs. And this gives you the dual benefits of big upside that you get with normal rental property investing, but it also lowers your risks and can increase your cash flow. Now, of course, you can't live in multiple homes at once, which is why you will need to move every two, three years, which some people might think that is burdensome. And maybe if you're not really interested in building long-term wealth, this isn't for you. But I will show you in a minute that it is very well worth moving every two or three years when you see the numbers and how doing this over and over and again can compound into literally millions of dollars.

• 3:57Dave Meyer?

  If you do this four to five times over the course of 10 years, my modeling of an average deal shows that you will be cash flowing tens of thousands of dollars a year, maybe up to $100,000 a year, and you will have millions of dollars in equity at your disposal. Let's start by talking about buying something about the average price in the United States right now. We're going to call it $400,000 and we're going to put as little down as possible. Now, if you have more money saved up, you can put more money down. That is often beneficial. But if you're starting from scratch, you can put as little as 3.5% down on your first mortgage. Now that is where this benefit of owner occupied financing comes in.

• 4:42Dave Meyer?

  If you were to go out and just buy a traditional rental property, you'd have to put probably 25% down. That's normal for an investor loan. But if you go and live in the property, you can put as little as 3.5% down. Now hopefully you can see that this is a really powerful tool here because instead of having to save up $100,000 for a down payment on this $400,000 rental, you can actually save up $14,000. That's 3.5% of $400,000. So this is really going to accelerate how quickly you can go out and get that deal. But again, you got to move into this property. Now you're gonna need more money than just $14,000. You're actually going to need some closing costs.

• 5:27Dave Meyer?

  I've estimated that at about $5,000 per deal. It's going to depend on what state you're in, what lender you use, but I think 5,000 is actually a good round number that will work. And then you're also going to need some cash reserves. Depending on the condition of the property, you might want, you know, one month of rent, two months of rent. If the property's not in great shape, you might want $5,000 or $10,000. I'm going to estimate it here at $3,000. So that just shows that for about $22,000, and I'm just using round numbers here as an example, but this is a very realistic example. For $22,000, you can get into a $400,000 property. I think you probably need 10 grand probably minimum for renovations and you're going to need to do a renovation. That's a key part of building equity.

• 6:11Dave Meyer?

  Don't worry, you don't have to do a crazy renovation. We're talking paints, floors, simple things that you might be able to DIY or can easily pay someone to do for not that much money. But we're talking about $35,000 here, right? I'm just going to estimate it. We said 22 plus 10 grand, that's 32,000. For our example, I'm just going to round up to 13,000 and say that to get into this $400,000 property, I'm suggesting you buy, you need $35,000. Now that's not chump change, that's still a lot of money, right? But it is a lot less than you would need if you were to go out and buy a traditional rental property where you needed a hundred grand just for the down payment, never mind the closing cost of the reserves and the renovations as well. So if you're sitting there figuring out, how do I get started in real estate?

• 6:56Dave Meyer?

  Think about saving up $35,000. You can also borrow some of this money from friends and family. You can partner with people, but you're going to probably need something like this. 35 grand to get into this first property. Once you have that 35,000 though, what should you be looking for? What kind of property? Here's what I would look for. This is personally just me, people have different opinions, but here's what I would look for. I would look for a small multifamily. So this is a two, three, or four unit property that has multiple units. Now you gotta stop at four because the way that these loans work, these 3.5% down loans, you can only go up to four units. If you hit a five unit building or anything bigger, that's going to be a commercial loan. It's not going to work for this strategy.

• 7:39Dave Meyer?

  You can do a single family home if you want, but personally, I think the better way to do it is buy a two unit, live in one and rent out the other. Buy a three unit, live in one and rent out the other two, or buy a four unit, live in one and rent out the other three. For me, that's the ideal situation. You're going to command maximum rent and it's a more comfortable living situation. On top of that, I think that what you want to look for is properties that need work, but are in good areas. If you go out and buy a really fancy property that already looks great, you're not going to be able to do that renovation and build equity. It's going to be easier for you to manage, but it's going to actually slow you down. One of the most reliable, best ways to build wealth as a real estate investor is doing renovations.

• 8:24Dave Meyer?

  So I think you target properties that need work in a good area. So this is like buying a C-class property in a B area, right? You're going to take it from C-class, you're going to make it a B-class property in a B area by doing a renovation. Or maybe depending on what market you're in, you buy a B building in an A area if you can afford it. But the key is being able to upgrade the property because that's what's going to allow you to recycle your capital in future years and move on to. That next property. Now personally, I like units with at least two bedrooms, ideally three bedrooms. That's sort of up to you. But one of the things I would be firm on is no big issues, right? You're just getting into this. Remember we said boring. We don't want anything exciting going on in these properties. We don't want structural issues. We don't need

• 9:08Dave Meyer?

  new roofs. We don't want new HVACs. We don't want anything messy on title. Experienced investors can make money on that and you might be willing to do that in your third or fourth property. Once you've done this a few times, first deal boring. We want boring stuff where you can throw some paint. You can maybe upgrade a bathroom or a kitchen. You can put new flooring in. That's the kind of stuff that we want to see in this first renovation. Boring is the name of the game. You don't want to take those additional risks because you just don't have to. You can do this with boring, better conditioned properties. And yes, you can do this at this price point. Depends on where you live. Obviously, if you're living in California or New York or Seattle,

• 9:48Dave Meyer?

  you're not going to be able to buy a two unit for $400,000. But I promise you, because I do this, you can do this all over the Midwest. There are areas of the Northeast. This is possible. This is areas of the Southeast that is possible. All over the country, you can find markets where these numbers work. So this is what I would target. A two to four unit property around $400,000. If you can get it for cheaper, even better, but let's just say $400,000. You want something that you can renovate and it has to be in a good area. Don't go buy something just because it's cheap in a not great area. That's not going to work. You want to find a property that needs work in a decent area and it's a manageable renovation without a lot of issues.

• 10:30Dave Meyer?

  Right after this quick break, I'm going to walk you through in a lot of detail how a boring property just like this can actually generate you thousands of dollars of cash flow and hundreds of thousands of dollars in equity in not that long of a time period. Stick with us. We'll be right back. Most investors only think about insurance when something goes wrong. A tenant injury, storm damage, loss of rent. Then suddenly, the cheapest policy doesn't feel like the best one anymore. That's why a lot of BiggerPockets investors use steadily for landlord insurance designed specifically for rental properties. Whether you own one property or a growing portfolio, they make it simple to get covered properly. And BiggerPockets Pro members get

• 11:11Dave Meyer?

  an extra 5% off their landlord insurance premiums. Visit biggerpockets.com/landlordinsurance to get a quote today.

• 11:19Henry Washington?

  Here's a strategy that most W2 employees have never heard of. Normally, if you want to write off a rental property against your regular income, you need real estate professional status. That means tracking hundreds of hours a year. Rent to Retirement just launched a program that skips all of that. It's called the STR loophole tenant placement program. Here's how it works. You buy one of Rent to Retirement's Class A new construction investment properties. You set up an Airbnb listing and self-manage it for the remainder of the year. Rent to Retirement then rents the home as a short-term rental to establish it as an STR for the year, no furnishing required, making this the easy button to save five or six figures in taxes this year.

• 12:01Henry Washington?

  And because you're the sole manager, there's no hourly minimum to meet. That lets you use a cost segregation study to accelerate the depreciation and potentially write off over $100,000 against your income, even on your first rental. Add in cash back up to 13% of the home price, which exceeds $60,000 on some properties. With this massive cash back incentives, investors are seeing total returns up to 126%. New construction, A-class properties, and inventory is limited. Learn more at biggerpockets.com/retirement or text REI to 33777. Again, text REI to 33777. Quick word about a new pro perk you'll want to know about. Aven.

• 12:46Henry Washington?

  If you're a homeowner, there's a good chance you're sitting on equity that you're not using. The problem is tapping into that usually means a cash-out refi, a traditional second mortgage, or weeks of paperwork just to get approved. Aven built something different. It's a credit card, but it's backed by your home equity. So you get a lot of the rate benefits of a HELOC with the flexibility of a card you can use anywhere. Rates are typically well below a standard credit card. Approval is fast and mostly online, and you can use it for anything. A renovation, paying down high-interest debt, or just have more breathing room in your budget. And if you're a BiggerPockets Pro member, there's an extra reason to check it out. Get approved for the Aven card and you'll get a $400 statement credit after spending $400 on your Aven card.

• 13:29Henry Washington?

  Enough to cover your entire annual Pro membership. Head over to aven.com/biggerpockets to see if you qualify. Aven Financial, NMLS #2042345. Cards issued per 2020 license from Visa USA, Inc. by Coastal Community Bank. NMLS #462289. Member FDIC. Equal housing lender. Subject to approval. Terms apply. Visit aven.com for details.

• 13:46Speaker 02

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• 14:19Dave Meyer?

  Welcome back to the BiggerPockets Podcast. I'm Dave Meyer. Today, we're talking about the boring, proven way to build wealth through real estate investing. Just as a reminder, we're talking about buying a house every two or three years, moving into it, making upgrades, moving out and moving on. Before the break, I talked about what I was, would target for a deal, but let's talk about the numbers. Let's actually dig into what this would actually mean for you in terms of your finances if you go out and do this. So I put together this calculator, actually, just to walk you through this. If you're watching it on YouTube, you can actually look through all the numbers that I'm putting in here. So we're going to buy this property for $400,000, right? And we're going to live in it. Now, I'm going to call this a three unit. I'm just going to assume that we're getting a three unit.

• 15:03Dave Meyer?

  I actually, when I'm buying deals in the Midwest, I target properties at about $125,000 per unit. I'm saying I'm going to buy three units for 400K. That's actually be a little more than what I'm targeting, but this is absolutely possible in the Midwest and areas of the Southeast as well. I also see this in the Northeast. Now, here's how these numbers actually work in, right? We're going to buy it for $400,000. We have our closing costs at five grand, our reserves at three grand, our renovations at 13 grand. That means that the total cash that we're invested, as we talked about before, is going to be about $35,000. Now, in the first year, your plan as an investor is to move in and to make these upgrades.

• 15:44Dave Meyer?

  So you maybe move into one unit, maybe it's the nicest unit, and then you do the renovation on the other two units while you're living there and get those renters in as soon as possible. Now, in our example, I'm assuming that each one of these properties, let's call them two bedrooms each, are going to rent out for about 1,500 bucks. Again, these are numbers literally from deals that I own in the Midwest. I'm using pretty similar numbers. These are not made up. These are absolutely feasible deals that you can be doing. So because we're only renting out two of the three units, our rent for this first deal is going to be about $3,000 per month. That's 1,500 bucks each. On top of that, we of course have expenses. So our mortgage payment is going to be about 2,300 bucks.

• 16:27Dave Meyer?

  We have taxes and insurance at 350. We have repairs and CapEx at 240. I'm just estimating these, but these are normal. You know, I'm doing 8% there. I'm doing a 5% vacancy contingency. And then I just did 5% for miscellaneous because sometimes when you're a new investor, things just come up. So I'm giving you a 5%, $150 a month budget just to figure stuff out, right? Most experienced investors won't put that in there, but I'm giving you a little benefit of the doubt here. You gotta have a little bit of a learning period. So all those things together bring our total expenses for the first year to $3,190. If you're tracking, our rental income was 3,000, meaning that our monthly cash flow is actually negative.

• 17:09Dave Meyer?

  It's negative $190 per month or about negative $2,300 per year. Now you might be thinking, that's not that exciting. And I totally understand that. But what I want you to realize here is that to rent out an equivalent property, like if you didn't buy this and you were just continued renting, instead of doing this house hacking strategy, to live in an equivalent apartment would cost you 1,500 bucks, right? That's what you're renting out these apartments for. So you have this option. You can either continue renting for 1,500 bucks a month or you could quote unquote, lose 190 bucks a month in cash flow. Now, if you're doing the math here, what you realize is that you're actually saving

• 17:51Dave Meyer?

  $1,300 a month in your living expenses by doing the house hacking, even though you are not technically cash flowing. This strategy is allowing you to save $15,600 per year in living expenses over renting an equivalent apartment.

• 18:10Dave Meyer?

  That's pretty good, right? I mean, if you put it that way, you can start to see that this is already improving your financial situation in year one. And as I'll show you in just a second, it gets a lot better in year two, and it just keeps getting better and better every year after that. But I just want to call out, even in year one, you're investing $35,000 and you're already generating a 40% return because instead of giving that $15,600 in rent away every year, you're saving that and you can either put that towards renovations or towards your next property, you're already earning a great return in that first year. And that's just on your personal cash flow. In addition to that, you're also increasing the value of the property.

• 18:55Dave Meyer?

  Remember, you wanted to invest $13,000 into those renovations. And in our assumptions, I'm saying are after repair value. The value of the property, once those renovations are done, actually goes up to 440,000 from 400,000. This is absolutely possible. If you find the right property and invest and do some DIY work, you invest $13,000, you can definitely increase the value of your property by 10%. And that's what we're showing here. So on top of that $15,600 that you saved by not paying rent, you're also making equity, right? You are earning $40,000 in equity. Plus, you paid off a little bit of your mortgage. You're talking about total benefit in the first year, like $48,000. That is an incredible start, right?

• 19:40Dave Meyer?

  That's even with the negative cash flow. And again, as you'll see, that cash flow is going to really grow over time and so will the equity, but this is an incredible start. Once you've done that renovation, what do you do in year two? You just wait, right? Learn the business. That's what I recommend people do. Just become a great property manager. This is when you start implementing systems, where you get the right software, where you build a great team. But basically, just live your life and save up money for the next deal. And as you'll see, as we go from year one to year two, our cash flow gets a little bit better. It goes from negative 190 to negative 127. And then in year three, it goes to negative 40. Now, again, this is not actually you losing money. The property might not be generating positive cash flow.

• 20:25Dave Meyer?

  But you're basically now in year three, spending $40 a month on your living expenses. Where if you were living in an equivalent apartment and renting it, it would cost you $1,500 a month. So that is a net benefit to you of $1,460 per month. That is a lot of money. That's like 18 grand a year that you are saving and that you can put towards your future real estate portfolio. So again, it might take you one year, it might take you two years, it might take you three years. But the goal here is just to save up money for the next deal. Now, you might be wondering, what is enough? How long do you have to wait? Well, enough is basically when you've either saved up enough money from your lower living expenses, or you have built up enough equity in the property to refinance,

• 21:10Dave Meyer?

  or most commonly, some combination of the both. Now, if you've never heard of refinancing, what it is, is basically restructuring your mortgage. So you can tap into some of the equity, some of the value that you have created in this property. This isn't some risky thing. It's very common for investors and homeowners alike. Millions of people do this every year. So one option again, is to save up that 15,000 a year, and that can get you there. But by refinancing, you can actually speed up your next deal. Let me just explain to you how. First and foremost, you need to refinance into a non-owner occupied loan. Now, I said at the beginning, one of the powerful things that we're taking advantage of with this boring strategy,

• 21:52Dave Meyer?

  is using this owner occupied loan to put as little as 3.5% down. But you can't live in multiple places. And so what you need to do is refinance this into a conventional investor mortgage. So that you can go move into another property and use that 3.5% mortgage again. Right? That's the goal here. You can't have two primary residences. Because you've built equity in this deal, you're going to turn it into a traditional rental. And then you're going to move on and house hack. That's the first goal, is to switch it from a owner occupied to a non-owner occupied loan. The second goal of your refinance is to pull out capital, like I was saying, that you can use for your next deal. And this part is really important. So I want to just, I'm going to walk through some of the details here so you can really understand what I'm talking about.

• 22:37Dave Meyer?

  For an investor loan, because you're going to refinance this property, one, into an investor loan, you need to put 25% down. When you're asking the question, when can I move on to my next property? Well, when you have enough equity to put 25% down into this property. Now, I want to be clear. I'm not saying you need to bring more cash to the deal and put it down, but you build equity, one, by doing the renovation. That's why it's so important to do this renovation. Two, from just normal market appreciation. And three, from loan pay down, right? Every month, you're paying your mortgage. You are paying down some of your principal balance, and you are building equity. Using our example around year three, year three and a half, I'm just going to use round numbers, but let's just say our property is worth about 460. Our mortgage balance is about 330 now.

• 23:22Dave Meyer?

  So we have like roughly $130,000 in equity. Now, you can't take that all out, right? Because you do have to do two things. You're taking out a new mortgage where you're going to put 25% down. So, right, that's $115,000 using these round numbers. So you're going to have to keep 115 grand in there. Then, you're going to have to take $330,000 of your 460 total and pay off your old mortgage, right? You have to go pay that off. So between the 330 in your original loan payoff and the 115 you need to keep in this deal, that's $445,000. And if the property is worth 460, if that's what it appraises for, that means you can pull out $15,000. That's awesome, right? It's not some massive thing,

• 24:04Dave Meyer?

  but you can see how this is going to help you for that next deal, right? After three years, you've saved $15,500 a year. That's over $46,000. Plus, you can access this $15,000 from a cash-out refinance, meaning that you're going to have now $60,000 for your next deal while you own a cash-flowing rental property that's going to generate you over $1,000 a month once you move out. I hope you can see where this is going, right? Yes, that first year, it's not the most exciting thing. Yes, you're saving a lot of money over your living expenses. But just three years later, now you have a cash flowing rental property. You have over a thousand dollars in cash flow.

• 24:47Dave Meyer?

  You have tens of thousands of dollars of equity into this deal. This is incredible, right? This is an amazing thing, and this is just your first deal. We're gonna take a quick break, but when we come back, I'm gonna show you that how if you just repeat this exact process three or four more times, it can absolutely transform your life, turn you into a millionaire, and help you achieve financial freedom. Stick with us, we'll be right back. For my wife's birthday, I wanted to make her a new website for her landscape design business. So I researched a lot of different options. I tried out a couple, but honestly, it was really overwhelming. It was pretty time consuming, and still, the site wasn't coming out the way I wanted it to. Then I tried Hostinger, and everything was super simple.

• 25:32Dave Meyer?

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• 27:12Dave Meyer?

  I just booked a ski trip to Park City and I've already got the whole thing planned out. Five days, first tracks every morning before the crowds show up, my knees reminding me I'm not 25 anymore by the second run and an embarrassing number of overpriced burritos at the lodge. I don't even care. This is the trip I look forward to all year. But here's the part I actually appreciate. The practical side of my brain kicking in is that my place doesn't have to just sit there empty the whole time I'm away. I can list my space on Airbnb and bring in a little extra income while I'm out getting humbled on a mountain. And with the co-host network, I'm not the one handling all of it. You can partner with a vetted local co-host

• 27:56Dave Meyer?

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• 28:41Dave Meyer?

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• 29:52Dave Meyer?

  Welcome back to the BiggerPockets Podcast. I'm Dave Meyer, talking about the most boring way to get rich with rentals. We talked about what to do with the first deal. I ran through some example numbers for you of how a first deal might work and how it could impact your personal net worth. Just as a reminder, first couple of years, you're not cash flowing, but you're saving a lot of money over alternative living situations. So you're actually building wealth that way that you can use towards your next couple of deals. And after two, three, maybe four years, depending on who you are, you could probably move on to that next property. Now, what did that next property look like? What should you be looking for in that next deal? Well, I told you this was going to be boring. So all you got to do is literally

• 30:34Dave Meyer?

  the exact same thing. Go buy another small multifamily, move into it, fix it up, and wait. The only difference I would recommend is maybe looking for either a slightly nicer property or a bigger value add opportunity. Like if you're willing to take on a bigger renovation, that might work because now you have more capital to play with. Remember, last deal, we said $35,000, but using our estimates from, and just our example using These rough numbers, probably a 50 to 60 grand to play with here. And so if you're willing to take on a bigger innovation, that's what I would personally do. Rather than buying a nicer place that's more expensive, I would focus on building equity.

• 31:14Dave Meyer?

  Value add investing is a great way to accumulate more capital to use for your third deal and your fourth deal. And to start to see this thing really start to snowball. So maybe let's just call it buying a four unit this time worth $420,000. So that's 105 a unit, absolutely achievable, but you are going to need to put more money into this, right? We're buying something that needs a bigger rehab. You're going to need about 20 ish, $22,000 for closing, down payment, reserves. But now you're going to have, let's say, 35, $40,000 to invest in the rehab. And that's a lot of money. That's really allows you to push up the value of this property from, let's say, 420 all the way up to $500,000, which is a totally reasonable expectation, right?

• 31:59Dave Meyer?

  You actually could do something like that. Investing 40 to earn another 40, totally reasonable, right? And that's it. This is the formula. Like this is the boring way that you can get rich. You just do the same thing over and over again. And if you're not convinced, let me actually just walk you through what this might look like at the portfolio level. And we're going to look at this on sort of a 15 year time horizon. I'll show you that you're going to really start to enjoy this benefits just a couple of years into this. But by 15 years, if you do this for 15 years, you are going to completely transform your financial life. So I'm just going to walk you through this. If you're watching this on YouTube, you can actually see the spreadsheet I'm using. But for everyone who's just listening on audio, I will describe this to you.

• 32:42Dave Meyer?

  Basically what you see, I've separated it into two different sections. The first is the cash flow, how much cash flow you're actually generating to live your life each year. And then I've calculated something called total benefit. That is basically the equity that you have in your property plus the cumulative cash flow for all of your properties. So that's basically the total benefit that you have generated from all of your properties together in a given year. Let's talk about cash flow first. In your first year of doing this strategy, you only own one deal and you are technically losing about $2,300 a year on this property. But as we discussed, when you compare that to living somewhere else, you're actually saving close to $15,000 a year. In year two, it gets a little bit better. You're losing slightly less money,

• 33:28Dave Meyer?

  but again, saving more. Same thing happens in year three. That's when you actually go out and buy your next property. And this is where your cash flow really starts to increase. Now, a lot of people might think, oh, how is it going to increase my cash flow if I'm pulling out money? Well, it's simple. That first deal, now instead of renting out two units, remember this is a three unit property, you're now renting out three units. And actually, in this scenario, your mortgage payment isn't going to change very much. Because even though you're taking out a mortgage on a more expensive property because you've increased the value, which is great, by putting 25% down, the amount of money that you're borrowing is probably not actually going to change that much. I actually did the math here.

• 34:12Dave Meyer?

  And if you look at the, I'll go back to this single deal, you'll see that the mortgage payment goes from about $2,300 a month in year three. After the refinance, it does go up to about $2,500 a month, but it's not that impactful. And when you add the entire new rental unit that you're bringing rent from, you go from being cash flow negative to cash flow positive. In year four alone, you're projecting from that first deal to make about $12,700. Now, of course, in year four, you're also buying a new property, which you might be cash flow negative on. So the total benefit in that fourth year, when you now own two properties, $10,000 a year in cash flow. That's pretty great, right? You're still saving money. You're still doing better than living in a rental unit.

• 34:56Dave Meyer?

  And now you're earning $10,000 a year in cash flow. And from there, it keeps getting better. By year seven, when you acquire your third property, you're up to $2,700 a month in cash flow. I should mention that this cash flow is highly tax advantaged. So it's like earning more like $36,000 a year in your job. Lot of money. Talking about $3,000 a month now in effective spending power that you're getting by year seven, but it just snowballs from there. By year nine, when you buy your fourth deal, you're up to 33,000 and that's when things just keep getting better. By year 10, you're at 50,000, year 12, 73,000, and by year 15, you're getting $93,000 a year in tax-advantaged cash flow.

• 35:40Dave Meyer?

  Again, when you figure out the tax benefits, that's similar to earning $120,000 a year from just four units. You started with $35,000. You put $14,000 down on that first deal and then 15 years later, you are earning $93,000 in cash flow. That's absolutely incredible. Hopefully you can see, this is the way that ordinary Americans can go from having tens of thousands of dollars to having hundreds of thousands of dollars in mostly passive income. And that, my friends, is just the cash flow side of it. We haven't even talked about the equity side of it. So let's turn our attention to that. This, again, like everything in real estate, it happens slowly.

• 36:23Dave Meyer?

  In year one, your total benefit, the total benefit of everything that's going on is around $11,720. It's good. It's worth it, right? But it's not huge. Second year, it jumps up to $50,000 because you did that renovation and now your property is worth the after-repair value. By year three, you're at $63,000. By year four, you're at $86,000 and that's when things really start to scale again. Because now you have that second property that we talked about, that you're doing the renovation on. You're going to have this massive bump in equity. So from year four to five, you go from $86,000 in total benefit to $155,000 in total benefit. By year 10, you're up to $588,000

• 37:06Dave Meyer?

  and by year 15, our time horizon for this example, you're at $1.33 million in total benefit. This is how real estate works. It starts slow. It is boring. But if you have this combination of cash flow... You build equity by doing renovations. You pay down your mortgage. And even if you have average market appreciation, by the way, and this is examples, I put the appreciation rate at 3%. Long-term average is 3.5%. So I put it a little below the long-term average. And it is still earning you $1.33 million in total benefit over just 15 years. Now, I know that's not get rich quick, but what I've been talking to you about is as stable and as predictable as it gets. These are low-risk type of real estate deals.

• 37:51Dave Meyer?

  There is always risk. You have to operate well. You have to execute on the strategy. But this is a predictable, reliable way that you can build serious cash flow and build serious wealth through real estate. So I hope you all can see the benefit of this. I hope you are always excited about this as I am. This is the way I started in real estate investing. I was a house hacker myself. And again, I talked to so many people here on the BiggerPockets Podcast, and it is probably one of the most common ways. I think it is the most common way that I see ordinary people go from, you know, living paycheck to paycheck, or just living in an ordinary job, to having real disposable wealth, having real financial freedom. This is it. It is boring, but it absolutely works. So before we get out of here,

• 38:35Dave Meyer?

  and before you go out and start doing this for yourself, let's just review what this is. The boring strategy is to do owner-occupied real estate investing. Go out, buy a property that needs a little bit of work. Use owner-occupied financing. Move into the property, do the renovation, and then wait, wait two, three, maybe four years, whatever it takes you to save money and to build equity in your property. Then take that money that you save and potentially money that you refinance out of your existing property and go do it again. You got to refinance that loan, remember, because you can only have one owner-occupied loan at a time. But just do that. Continue to repeat as much as you need to. And I know that some people think

• 39:19Dave Meyer?

  this is going to be uncomfortable, that you don't want to live next to your tenants. I'm sorry, I just, it's not that bad. I have done it, and it's not an issue. I know people who are doing it in their 20s. In their 30s, in their 40s, in their 50s. You don't need to be living right next to each other. Find a side by side town home with a fence in the backyard. Those exist all over the place. Go do that. Find a primary, single family home, live in it, that has an ADU in the back, or a mother-in-law suite that you can rent out. There are absolutely ways to make this sustainable for you and your life. So don't get discouraged by that. This is something everyone can do. And if you are motivated to find financial freedom and to build wealth,

• 40:01Dave Meyer?

  I promise you, this boring strategy can work for you. That's what we've got for you guys today. Thank you so much for listening to this episode of the BiggerPockets Podcast. I'm Dave Meyer for BiggerPockets. We'll see you next time.