Pod Insights BiggerPockets Real Estate Podcast Making $200K/Year With the Least Amount of Rentals Possible About this episode Don’t buy in good school districts. Always end your leases in winter. NEVER raise rents on a tenant. These are just some of the “Dionisms” that have made Dion McNeeley, the so-called “lazy investor,” rich with rental properties. He achieved financial freedom, retiring early with a $200,000/year passive income after slowly, steadily, and lazily investing for the past decade. Want to never swing a hammer? You don’t have to! Want tenants to stick around as long as possible? They will! Too scared to have the rent raise talk? Let Dion do it for you! In this episode, we’re breaking down the ten different “Dionisms” (unconventional landlord advice) that have literally made Dion millions and can do the same for you. Dion went from debt-riddled to multi-millionaire in just over a decade, starting his journey making just $17/hour, with three kids and very little time. If Dion can reach financial freedom with FEWER rentals, why can’t you? In This Episode We Cover: Dion’s small (but mighty) financial freedom-enabling real estate portfolio Dion’s “binder strategy” that has tenants raise rents FOR you Why Dion never has his leases expire in the summer (even though EVERYONE says to do this) Buying in average school districts? Dion says DON’T buy near good schools (and he’s right) The surprising reason why the “worst states to invest in” will make you the richest And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Ask Your Question on the BiggerPockets Forums BiggerPockets YouTube Apply to Be a Podcast Guest Maximize Your Real Estate Investing with a Self-Directed IRA from Equity Trust Retire with FEWER Rentals with “The Small and Mighty Real Estate Investor” Find an Investor-Friendly Agent in Your Area Investor Spotlight: From USMC to FIRE With Just 5 Properties Featuring Dion McNeeley Connect with Dion Connect with Dave (00:00) Intro (01:42) Low Income, High Debt, Lots of Responsibility (05:33) $21,000/Month Portfolio! (08:20) Have FEWER Rentals (11:51) 1. DON'T Raise Rents (18:18) 2. End Leases in the Winter (21:05) 3. DON’T Buy Near Good Schools (26:45) 4. DON’T Diversify (29:59) 5. DON’T Use LLCs (32:29) 6. Buy in BLUE States (37:30) 7. Value-Add Isn’t Worth It (40:23) Be Like Dion! Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1085 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
Transcript 10,722 words · 4 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Dave Meyer? Do not buy properties in a good school district. Have your leases end in the winter. Let your tenants pick their own rent? You think you've been following real estate best practices? Well, today we'll explain why everything you thought you knew might be wrong.
0:20 Dave Meyer? Hey friends, it's Dave Meyer. Welcome to the BiggerPockets Podcast where we help you achieve financial freedom through real estate investing. Today's guest is Dion McNeely, an investor in the Tacoma, Seattle area. And you may have heard Dion before on The Rookie Show or BiggerPockets Money Podcast before, and he's pretty famous for developing the quote unquote binder strategy for raising rents. Dion started investing with a huge amount of debt and a low income. He used only the most basic strategies and says he tried to be as lazy about his investing as possible. Today, fast forward, he's retired with more passive income than he can even spend. So we're going to get into the details of how he had so much success, even when he
1:03 Dave Meyer? admittedly put as little work as possible into his portfolio. The other thing that I really like about Dion is that he's always thinking outside the box and spending a lot of time challenging conventional wisdom. He's actually developed these quote unquote Dionisms that really cut against the usual advice you always hear about how to manage your portfolio. These are things like having leases that end in the summer or buying houses in strong school districts. Dion actually says that you should never do these things. And if all of that sounds crazy to you, keep listening and you might just agree with him by the end of the episode. Here's me with Dion McNeely. Dion, welcome back to the BiggerPockets Podcast. Thanks for being here.
1:46 Speaker 01 Howdy, I appreciate the invitation. I like to share my information on the Real Estate Rookie Podcast because I tend to talk to those people who are just starting out. But this is the podcast that actually helped me reach financial freedom. So I'm excited anytime I get to come back here.
1:59 Dave Meyer? Absolutely. Well, as you said, you've been on the BiggerPockets Network quite a few times, but for those who are maybe new listeners or just need a refresher, tell us a little bit about yourself.
2:10 Speaker 01 So what I'm most known for is this thing called the binder strategy where I don't raise my rents, my tenants do. And we can cover that a little bit before we're done today. But I didn't start investing until I was 40. I got laid off from law enforcement because of the 2008 housing crash. Was a single parent with three kids. Found out about $89,000 in bad debt in my name. I didn't know existed until the divorce. Started teaching at a CDL school, making $17 an hour. So I had a lot of bad debt, not a lot of income, a lot of responsibilities. And decided to try real estate. Started out really bad, made every mistake I could think of. It was, I think I was trying to make the full list of mistakes that you can. I tried to do it without a lease. I tried to rent to a friend. I did all of those mistakes. Then finally decided to educate myself.
2:55 Speaker 01 Started house hacking in 2013 with a duplex. When everyone was screaming, don't buy because prices are higher than 2008. So it's going to crash. Got another one in 2015 when everybody was screaming the silver tsunami was about to hit. So prices were going to crash. Got another in 2018 when everybody said prices are high and interest rates are high. Cause I was paying 7% interest rates that you can't possibly do it then. And during the pandemic in 2020, I, I house hacked my second one at fourplex and bought a triplex. When everyone was saying it was going to crash because of everything going on in 2021. When forbearance was ending, I bought another duplex. And in 2022, I retired after 12 years of investing. And now my kids won't inherit a parent they have to take care of.
3:36 Speaker 01 Instead, they'll probably inherit millions as just an accidental byproduct of me trying to figure out how not to have to work.
3:42 Dave Meyer? Unbelievable. Well, it's a very cool story and we, I want to get into some more of this. Let, let's just start at 2008, just briefly, and then we'll move on to what you're doing today. But you lost your job. It sounded like you were in a tough situation. This wasn't a good time for real estate. So why did you choose to try it?
4:00 Speaker 01 So kind of an accidental problem. I owned a house and I couldn't sell the house. I was upside down. I owed more than it was worth. Interest rates had gone up, so I was stuck with the property. And I had some examples of people who had reached financial freedom. My brother has 10 paid off rentals and he retired about that time. I have a friend with 30 rentals, but he'd been doing it for decades. And they use strategies I just didn't have access to, right? I was working full time, raising the kids. Wasn't very handy. My brother Would buy a place, do a full rehab and then pay off the HELOC that he used to buy it. I didn't have equity and deciding to do it was actually around that two thousand eight nine. When I got laid off from law enforcement, it was a several year process to get my credit score fixed. Get enough work history as a CDL instructor so that I'd be bankable.
4:46 Speaker 01 I moved from my house into an apartment and rented the house out. So that I can get rental income on two years of tax returns to get around my bad debt to income ratio. And then when I bought that first duplex, moving from the apartment into the duplex. I've had a lot of friends and people that I meet say they couldn't do it because they have family. And I think my family was the motivating factor to do it, not the excuse not to.
5:07 Dave Meyer? Yeah.
5:08 Speaker 01 And I think until you have that conversation with your family, you don't know if they're going to want to or not. My kids were actually excited. My, my son said, wait, we get to move into an apartment complex where there's a bunch of teenage girls. And my daughter said, we get to move into a place where I'm the new girl. There was some TV show called New Girls, so thanks Hollywood for that.
5:24 Dave Meyer? Yeah.
5:24 Speaker 01 But they were excited about the moves and they didn't even realize it was financial decisions making us do this.
5:29 Dave Meyer? Oh, they were just pumped about it. That's great. It's a win win for everyone. Fast forward to today, how many units do you have? And you had talked about paying them off, like what's your average debt on these properties?
5:40 Speaker 01 So when I was in growth mode, I wanted to maintain about seventy percent loan to value. So that I would gain the most levered appreciation, levered depreciation. And I had the security of that, that drug that comes, that kills your dream, that paycheck that we all work for. And when I lost the security of that, I lowered my, my goal to fifty percent loan to value. So that I wouldn't be as levered when I was retiring. And the current portfolio looks like this. I have eighteen rental units. It's on eight properties, so it's mostly duplexes, a triplex and a fourplex. I'm house hacking a duplex. Something that most people think of house hacking for is they think it's the way you start in real estate. For me, it was the way I started retirement.
6:21 Dave Meyer? Totally.
6:22 Speaker 01 I moved to an area I wanted to live in. I get to travel and there's still somebody living on the property. I still don't have a housing expense. But the actual cash flow from the property, just a quick breakdown, is gross monthly cash flow from 18 units is 35,000. I have about 9,000 a month in mortgages going out. So that's principal, interest, taxes and insurance. It used to be eight, but taxes and insurance went up. I set aside a little over 5,000 a month for repairs. So that's about 15% that I set aside for future costs, leaving me with about $21,000 a month that I'm trying to figure out how to spend in retirement.
6:56 Dave Meyer? Wow, that's unbelievable. That's a huge income. How does that, can I just ask how that compares to what you were making before you were laid off in 2008?
7:03 Speaker 01 So when my cash flow from rentals passed 2,700 a month, that was more than I was making as a police officer.
7:10 Dave Meyer? Okay, so you're like 10x that or 8x that or something like that?
7:13 Speaker 01 Right, yeah. It's significantly different. And that's why I said, kind of sarcastically, trying to figure out how to spend it, that's the biggest challenge for me.
7:20 Dave Meyer? Yeah.
7:20 Speaker 01 The not having money, so living frugally, and then the dedication it took for a decade to reach financial freedom and to save every penny to invest for the next property. It's a really hard switch to flip in our brain.
7:32 Dave Meyer? Yeah.
7:32 Speaker 01 On, on how do I go to spending? Because I'm no longer saving for retirement. I don't pay a penny in taxes. I haven't paid taxes on rental income yet. I look forward to the day that I do. That'll mean I make so much money, I had to give some to the government. But that lever depreciation is amazing.
7:46 Dave Meyer? Wow. Well, that, that's incredible. It's, it's very cool. And it, I think that is honestly, hopefully everyone listening to this gets to this point. But when you do reach that level of financial independence, it is, it's tough to like, realize that you could buy a decent car, or you know, that you can afford to go out to eat a couple times more. And it's not, it's, it's a weird like psychological shift that you have. It's not about the money in your bank account. But like you said, you should have to just adopt this frugal mindset and a reinvestment mindset, at least to me. Every dollar cash you put it back into a new property. So my question is, why not buy more properties?
8:23 Speaker 01 So I didn't invest to live a frugal life. If I had to be frugal, I probably would just have stayed working. My goal was to retire and live the life that I felt like living, which is traveling and scuba diving as in many places as I want to.
8:37 Dave Meyer? Oh, cool.
8:38 Speaker 01 And you guys have had Coach Carson on the, he has a book out, Small and Mighty Investor.
8:43 Dave Meyer? Love Chad, yeah.
8:44 Speaker 01 Chad is awesome and I really align with his. My goal was never the most amount of units or the most amount of cash flow or a big portfolio. What I wanted personally was the right amount of cash flow from the least amount of units. And it was a really simple math equation for me. It's I spend about $4,000 a month doing everything I want to do. So I multiplied that by four as a safety net, right? In 2018, I reached that. From 2018 to 2022, I lived off of rental income and didn't touch anything from my job to make sure it's like a litmus test. I don't need it. So I had a four time multiplier, cash flow above 16,000. I don't want more. One of the ways I grew is you have a choice of recycling cash flow or recycling equity capital.
9:27 Speaker 01 I've never done a home equity line of credit. I've never done a cash out refinance. I've never sold for a 1031. That's one of the reasons I have so much cash flow on so few units. Cause I could have grown to a bigger portfolio with thinner margins if I use the equity. And I try to redefine equity for everybody that I meet. From you have equity you can touch. That's what most people say. I say you have the ability to add debt to an existing asset. So not adding that debt is why I have so much cash flow on so few units.
9:55 Dave Meyer? It's great. I, I love this philosophy in general, just showing that Dion, you've literally eight x'd your income and with just 18 units, right? On eight properties, which I say just, but that's a huge, very successful portfolio. It's just when you go on social media, you hear people saying that they have dozens or thousands of units. But clearly Dion is demonstrating to everyone that you don't need to have this massive ambition just for acquisition, but just by being diligent and being somewhat risk averse and just sort of sticking to the fundamentals and paying down your debt as much as possible. You could greatly increase your income, even in today's day and age, with just a relatively achievable number of units. It doesn't have to sound.
10:40 Dave Meyer? Like this crazy number. I think for most people, even if you're just starting out, the idea of acquiring eight units over 10 years seems reasonable. And for most people, it is actually reasonable. So, super glad you said that. Also wanted to just reiterate something I've stolen from Chad. He talks about like the growth phase. And then he talks about sort of the quote unquote harvester phase, which you get to the end at your end of your career, which it sounds like what you're at, which is when you start paying down that debt. And that, just want to underscore for everyone, there's kind of different strategies, different tactics that you use depending on where you are. When you're acquiring properties, maybe you do more use more leverage. But when you're at the point Dion's at, or Chad is at, that's sort of when maybe you take risk off the table. You, you don't grow your equity as much as possible.
11:25 Dave Meyer? You focus on cash flow because you want to go scuba diving like Dion does, which is great. Well, thanks for sharing the update with us, Deanna. And congrats on all your success. Super, super impressive. We do have to take a quick break. But when we come back, I want to shift gears and talk about some of the quote unquote Dionisms, maybe these counterintuitive ideas that you have for your portfolio. We'll be right back. You know that thing where you discover a feature you wish your software had? And it turns out it already exists, just on a different platform. Like, oh, you want rent payments processed in two days. Rent Ready does it. Oh, you want to block tenants from making partial payments mid eviction. Rent Ready does that, too. Oh, you want full accounting and tax
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15:26 Dave Meyer? Welcome back to the BiggerPockets Podcast here with Dion McNeely. We caught up on his portfolio over the last couple of years, but now we're turning our attention to a bunch of different, somewhat counterintuitive ideas or principles that you use in your own investing, Dion. I'm super excited to hear about them.
15:44 Speaker 01 So I think looking at things through fresh eyes is one of the most important things when it comes to investing. You can't go out and study what somebody else did and copy it. You have to take what somebody else did, or look at what hundreds of other people did, and then figure out with your resources, your timeline and your goals, what they're doing that would match your strategy and utilize a little bit from each one. And so some of the things I come up with that work for me seem to, I don't want to say upset. I get a reaction when I tell other investors these things.
16:12 Dave Meyer? Okay.
16:12 Speaker 01 The first one I go with is I don't raise my rents. I hear so many landlords go, I don't want to raise the rent and lose a good tenant. Well, if you don't raise the rent, you're going to lose a good asset. So what I did is I came up with the binder strategy, which is where my tenants ask me to raise the rent. So I'm not raising the rent, but my rent stays consistently growing just below market.
16:32 Dave Meyer? Okay.
16:33 Speaker 01 Without having to have high tenant turnover, or upset tenants, or lose a good tenant. And so that's been talked about here on BiggerPockets a few times. And so to me, that's my first counterintuitive one.
16:42 Dave Meyer? I have heard of this binder strategy through you, Dion, but for those who aren't familiar, you got to make sense of this for us because you're saying that your tenants essentially volunteer to pay more rent. How do you pull that off?
16:55 Speaker 01 So I buy properties from MLS with conventional loans, right? No, I don't do driving for dollars, no wholesaling, no creative anything. I'm a super lazy investor. I was working and raising kids. And so I just had to add a property every couple of years and I didn't need a big stream of properties. I just need to find the right one every couple of years. I preferred to buy them with tenants in place. And usually the tenants were neglected, properties weren't taken care of very well, rents were far behind, that's why they were selling. So I go to the tenants. Most landlords would want the place vacant. They would want to do a rehab and get market rents. Well, I didn't have the time or the funding to do a full rehab and carry the burn rate of a place empty for a few months. I wanted to buy it occupied. That meant plumbing was probably working. Electric was probably working.
17:36 Speaker 01 Not a lot of repairs needed done. And so I wouldn't do this right away because I didn't get to vet those tenants. I didn't get to run their credit score or know their work history or eviction history. So I'd want to wait two months to make sure they paid on time. They didn't call me for super trivial things. I didn't get noise complaints, but once I decided I wanted to keep the tenant, it's called the binder strategy because actually use a three ring binder.
17:57 Dave Meyer? You actually have a binder?
17:59 Speaker 01 This is what I'll be doing soon. The cover is going to be a picture of the property with the current Zillow or Redfin estimate of what the property is worth. So you tell the tenants.
18:06 Dave Meyer? Okay.
18:07 Speaker 01 Here's, here's the current value of the property. Your rent made sense to the previous owner, but my property taxes and insurance are going to be based on this. And the tenant doesn't care, but I'm showing them this is online. It's printed right from the internet. You can Google everything I'm going to talk about. So you can verify what I'm going to say. The next page is a printout from Fair Market with what the rents are in the area for however many units the person is in. If they're in a two bedroom or a three bedroom, this is what the government would pay me if a section eight tenant moved in. If you're buying military installation, I'm buying joint based Lewis McCord, you might have the basic allowance for housing printout to see what the military pays for housing. Then there will be a map with all of the rentals in the area and then several pages of rentals available currently in your area with the same number of bedrooms as the one the tenant is in.
18:50 Speaker 01 In this example, the tenant is paying about 1,400. I think it's 1,460 a current rent. Area average is 2,000 to 2,100. So I've got, I'm going to print out some, some of the areas there. They're about $600 off. As a landlord, if I go into the property and I say, I'm raising your rent $100, I'm a jerk. I get flamed on social media. I probably get an upset tenant. They probably start looking for other places. Maybe they move in with a friend or move in some, something else. But if I go in and I go, you're paying 1,460, section eight will pay me for this area 1,987. I've got several examples of 2,000 to 2,100 and then I ask the magic question, what do you think would be fair? Almost every time so far, the tenant came back with a little more than split the difference.
19:34 Speaker 01 So in this case, it was, it went to 1760. So it was $300 increase. If I increase it $100, it's terrible and I have an unhappy tenant. If the tenant asks for $300 and I agree, they're happy, but they're educated. They see what it would be if they moved. I've had a lot of times where the tenant suggests an amount and I say, that would be fair for, for, for me, but that's a bit much. How about we instead of 300, go up 250, bring it down a little from what they ask. So they actually walk away thinking, well, I've saved money over what I suggested as my rent. Happy tenants don't trash your property and happy tenants don't leave. It's actually pretty rare that they'll move out.
20:10 Dave Meyer? That's right. Yeah. I mean, this is such a cool strategy. I, I love this idea. It really just speaks to the psychology of you said, it's not really, so much of this is not even mad, right? Like you said, a hundred bucks, people are going to get mad, but giving people agency and also just, you treat them like adults. You're explaining to them your situation. And I think most people who are reasonable are going to look at that and say, yeah, I mean, like I'm getting a good deal. If they pick a rent, they're still getting a good deal by your estimation, right? You're getting what you need, Dion. They're happy and they're still getting in their mind, still a good deal. And you've given them some autonomy and sense of control over their own situation, which I would imagine goes a long way to having very happy tenants and high occupancy rates.
20:54 Speaker 01 One of the strategies I really love is, is from Michael Zubor. The, he was on the BiggerPockets Money Show, the One Rental at a Time community. He talks about getting to four rentals. If you get to four rentals, you'll find out if you want more. When I got to four, if I thought, if I raised the rent and I have a tenant turnover, every time I talked to the tenant about the rent, if I have a tenant turnover, I don't think I would have wanted more. But coming up with the binder strategy and having such low tenant turnover, I was able to grow the portfolio. At no point when I was working did I think, oh, this is too much work. I don't want another rental. It takes me about two hours a month to manage all 18 units. I can easily add that to my, my workload when I had a job, but that's what Zubor said was get to four and then you'll know. When I got to four, I knew I needed a strategy that made it easier and to give me less tenant turnover.
21:37 Speaker 01 Because if, if it was a struggle, I don't even know if I would have kept the four.
21:40 Dave Meyer? All right. That is very, very interesting and it's not counter to it. Actually, once you explain it to me, it makes a lot of sense, but it's not obvious. It's something that I think a lot of people would not see coming. So thanks for sharing that. What is it? Is your second Dionism?
21:55 Speaker 01 I like my leases to end in the winter and most landlords say, I want my lease to end in the summer because it's easier to find a tenant.
22:01 Dave Meyer? Interesting because I've done the opposite. I have to admit, if I had a lease coming up on a new property in November, I'd let them either sign like a six month lease or an 18 month lease to try and get them in the summer because I've always had this belief that you have more demand in the summer. But are you saying kind of the contrarian view here works?
22:22 Speaker 01 More people move in the summer. If your goal is to make it easier to find a tenant, sure, have your lease end in the summer. My goal was to have the least amount of tenant turnover because I was working full time, raising three kids. I didn't want it to be easy to find a tenant. I didn't even actually want to be good at finding a tenant. What I wanted was low tenant turnover. Now, if people move in the summer, that means less people move in the winter. Kids are in school.
22:47 Dave Meyer? Interesting.
22:48 Speaker 01 It's harder because it's cold. So I've had very little tenant turnover because most of my leases all but one right now end in December and January.
22:54 Dave Meyer? That's awesome. Do you ever get a situation where people ask to extend to the summer? You know, they want to move out, but it's November and they're like, hey, can I extend this to May?
23:02 Speaker 01 I haven't yet. So there's a couple of things I'll do with my leases because I go to every one of my tenants and I say, you should not be renting. This is the dumbest thing you do. You should be buying a duplex, just like the one you're renting. You should live on one side and rent out the other. So I try to talk all of them into getting on the property ladder. Part of it is they're probably going to find my YouTube channel someday and I want them to know I'm transparent. I'm trying to get them on the property ladder. So I tell the tenants and I've had a few go, okay, I want to buy a house. But if I sign a lease, what do I do? And I say, well, look, I need the year long lease because it makes me bankable for the next loan. So my lenders want to see that I have year long leases. But if you're looking to buy a property, how about we make your lease termination fee $50?
23:38 Dave Meyer? I love that.
23:39 Speaker 01 So when I introduce you to an agent and I introduce you to my lender and you buy a place, hopefully, I've always wanted them to buy a duplex or something. But the three that have done it in this decade have always bought houses. So they terminate their lease anytime they want. So I'm helping them to get on the property ladder. I have the lease that makes my lender happy. And I'm kind of aware there's a tenant turnover coming because they're buying a house if they find the one that they do. And then I've never had a lender come out and go, I don't like that your lease termination fee is so low. I don't even think I've ever met one that looked at that part. They just go, what are the dates on the lease? Okay, what's the amount? Great. That hits our DTI that we need.
24:11 Dave Meyer? Oh, that's cool. Very cool. I really like that. That's awesome. All right. So those are the first two Dionisms. Just as to recap, it was tenants raise their rents, not Dion, and he prefers to end in the winter leases instead of in the summer. And just as a reminder, these are 10 principles, ideas, philosophies Dion has evolved over the course of his investing career that are a little bit counterintuitive to what the common narratives about real estate investing are. So far, I like these two. Hit us with the third one.
24:40 Speaker 01 I do not want to own a rental property in a good school district, ever.
24:47 Dave Meyer? Really? Why?
24:49 Speaker 01 So why is the school district good?
24:51 Dave Meyer? High property taxes.
24:52 Speaker 01 Because the property taxes are higher.
24:54 Dave Meyer? Yeah, exactly.
24:54 Speaker 01 Funding for the school district.
24:55 Dave Meyer? Yeah.
24:56 Speaker 01 My goal is not the biggest portfolio or the most cash flow. It's the right amount of cash flow from the least amount of units. And then there's kind of a sub-goal of low tenant turnover. Why would I invest in a good school district when I'm aging out my tenants? Kid leaves middle school, you don't like the high school, you move. Kid graduates high school, goes to college, you move. I have tenants in places that were, living there 26 years, I purchased it, they're there nine years later. Because they're not in a good school district, they didn't pick it because of the age of their kids or what they were going to get out of that local community, based on schools. So I like the low property taxes, I like the low tenant turnover, it's counterintuitive. I also really like the rent to price ratio that comes from getting out of those Class B and Class A neighborhoods.
25:38 Speaker 01 So the Class C neighborhoods tend to have the not-quite-as-attractive school districts, which more lines up with my rent to price ratio.
25:46 Dave Meyer? Curious, Dion, does that mean, are you still renting to families?
25:49 Speaker 01 I have some, I have some families that I rent to, yes. I would never do anything discriminatory.
25:55 Dave Meyer? No, just curious, like, who's attracted to these properties?
25:58 Speaker 01 So this is a couple of forms of legal discrimination that I do. My goal is not to rent to families. All the pet damage that I've ever had totaled in over a decade, it's $200. But the kid damage that I've had was tens of thousands. So I prefer not to rent to kids, but I can use it as a determining factor to rent to somebody or not. But if I don't invest in good school districts, I'm less likely to get families. And anytime I have repair in a bathroom, right, I won't go out and rip out all the bathtubs, but if I have a problem with the bathtub... I will take it out and put in a walk-in shower. Having walk-in showers means also less likely to rent to families. So I do have a few tenants that have kids. It tends to be where my problems and damages happen. Pipes that get completely 12-foot section
26:41 Speaker 01 of pipe clogged with otter pop trimmings from kids. It doesn't happen if you don't have kids. And that would actually happen last year. So no, I don't discriminate illegally, but I do target my tenants. Kind of like one of my forms of diversifying, another deionism is I'm 100% in real estate. I don't own one stock. I don't own any crypto. I don't have any money in a retirement account. And so since I'm all into real estate, I have to diversify. And one of my forms of diversifying in real estate is I want about one-third military, one-third section eight, and one-third working or retired. And if you ran an ad that said military only or section eight only, I'd get sued.
27:17 Dave Meyer? Right.
27:17 Speaker 01 But if I run an ad on the base, or if I send my listing to the housing authority and say, this is the link to the place that becomes available on Tuesday, can you share it with your tenants or your clients? What type of tenant am I most likely to get? So I can control how I advertise, not what I advertise to avoid being sued. And I don't maintain a perfect ratio, but I want about a third of each. So I'm ready for a pandemic, an eviction moratorium, a stock market crash, or a prolonged government shutdown where it doesn't hit my entire portfolio.
27:46 Dave Meyer? Interesting. So you like military, I assume, because it's recession resistant, very stable job. Same thing with retirement. I guess you probably have people who are on fixed income, either relying on a pension or social security. And with section eight, the government just guarantees the income. So you're basically looking for any sort of tenant who's not reliant on basically a private sector job.
28:10 Speaker 01 Correct. But diversified, I wouldn't want a portfolio of 100% military if there was a BRAC meeting and JBLM closed down, base realignment enclosure meeting, or if the section eight program gets defunded, or whatever could happen in the future, or it gets a pause in payments. So about a third ratio makes me sleep like a baby.
28:27 Dave Meyer? That's interesting. Yeah, I like this one. I mostly invest in. Downtown areas in bigger cities. And so my primary tenants are what you would call dinks, right? Double income, no kids, which usually pay high, but they turn over a lot, for sure. Like, these people move every year, every two years. That's just part of the game. Luckily, I invest in places where you can usually do that without a vacancy. But it's definitely a sort of an opposite sort of strategy. I have bought in some solid school districts, and I've always sort of used that as a strategy, or I've started using that as a strategy to avoid vacancy. But it sounds like you're taking the exact opposite approach. It's pretty interesting.
29:08 Speaker 01 Yeah. So I've had tenants that have lost their job and never missed a day of rent. So if you're in a good school district in a good area, and you have two dinks, high income, I have what I call dinkwads, dual income, no kids with a dog.
29:20 Dave Meyer? Yep.
29:20 Speaker 01 And I've got like, three couples that fit that bill. And I like the Class C rentals, because Class B or A, the higher end, more luxury, higher rents. If somebody loses $150,000 a year job, it's kind of hard to replace it.
29:33 Dave Meyer? That's true.
29:34 Speaker 01 And unemployment is a big hit to what they were making. Versus my police officer, my school teacher, my truck driver that's making $20 to $30 an hour, loses their job, unemployment covers their bills for the month or two, and getting a job that pays almost the same is, is not easy, but a lot easier than finding that $150,000 job replacement.
29:53 Dave Meyer? This makes a lot of sense. I think my general feeling is just trying to make sure that you're matching the right tenants to the right assets, like you're doing. Like, you know what these types of people that you're trying to attract are looking for. You're not overbuying for those tenants. You're not underbuying for those tenants. You've found product market fit for the type of, of portfolio that you want to build. And there's no right answer here. I think some people might do the opposite, but I like your approach. I think it's pretty interesting. All right. So you actually hit on another Dionism. You said just a minute ago about not diversifying into other asset classes. It sounds like maybe this started because of necessity, just given your financial situation in 2008. Is that why? Or was there another motivation there?
30:36 Speaker 01 So when I started educating myself, I found bigger pockets. I found rich dad, poor dad. But I also found a lot of talks From Warren Buffett and Charlie Munger. And I watched a couple of panel discussions. Warren Buffett would talk about diversifying. And then there's guys like Kevin O'Leary, Mr. Wonderful, that says, no more than 20% in one asset class, no more than 5% in any one asset. So they're the big diversification cheerleaders. But Charlie Munger, who was Warren Buffett's partner for decades, actually one time said, diversifying is the dumbest thing you can do. You're going to master three or four asset classes? He says, pick one asset class and master it to go from poor to wealthy. Once you're wealthy, you can diversify to protect your wealth. But if you diversify on the path to becoming wealthy, you never will.
31:21 Speaker 01 And I looked at that and I thought, well, I don't understand stocks. I don't have a lot of money to invest. I can't house hack a stock. I'm not an entrepreneur in any way. I'm a W two employee. I've been a marine, a cop, a truck driver, CDL instructor, like creating business, not my thing. But taking the money I make from a W two job and putting it to work in something that takes two hours a month to manage, that I can handle. So I'm 100% focused in real estate. I diversified by having one third military section eight and working a retired tenants. But I also diversified, the smaller my portfolio was, the more important this was. But I wanted my properties at least 10 miles apart. And in Washington, that puts me in different counties, or at least in different cities.
31:58 Dave Meyer? Interesting.
31:59 Speaker 01 So that if the base closes, or the port goes on strike, or the hospital, something happens, only one or two of my properties would be impacted. So I'm diversified by being spread out in one market, like two counties in the beginning. But different types of tenants spread out. Net worth now is probably an account cost of selling. So paying taxes, paying the agent fees and everything, a little over 3 million, which is a big number compared to
32:22 Dave Meyer? Amazing.
32:23 Speaker 01 Lot of debt, $17 an hour to having a positive net worth. I don't think I'm wealthy enough yet to need to diversify. I think a $10 million net worth, I'd probably start looking at, I'll probably buy some stocks or crypto or something. But I understand my asset class and I'm diversified in it well enough to be able to walk away from a job that had golden handcuffs at the end, right? I had been demoted all the way down to president of the company. I had $2 million golden handcuffs. And when I walked away, I walked away from that and don't care because it's really weird with financial freedom. Once your portfolio reaches a certain point, and it's a, I think it's a LeBron quote, but he said, when you don't have enough money is the only thing. And once you have enough money becomes just a thing. And it was just a thing at that point. So I'm not ready to diversify
33:06 Speaker 01 more yet. I could someday. And I think if you're just starting out, it's really important to focus on your asset class, whatever it is, it could be stocks, it could be crypto, it could be running a business, it could be real estate, but pick one and master it.
33:17 Dave Meyer? I totally agree with that. I do invest in the stock market quite a lot, but I didn't for probably the first nine years of my investing career until I, you know, was making significantly more for my W2 job than I was spending every month. And I put some of it towards real estate, but some of it towards investing in the stock market as well. All right, now we've done four. So we've talked about tenants raising their own rent, leases ending in the winter, not good school districts, don't diversify. All of these are very, very counterintuitive. We've got six more to go. Give us one more.
33:49 Speaker 01 So I don't know that we'll get to all 10 if we have time, but the one that gets the most controversial response is none of my properties are or ever will be in a LLC.
34:01 Dave Meyer? Oh, really? Interesting. So you don't have any partners?
34:05 Speaker 01 Exactly. If I had partners, I would have LLCs. I was going to buy with my friend, Millennial Mike, we were looking at Gary and Deanna buying a fiveplex together. We absolutely would have formed an LLC, purchased that property together, ended up not getting the deal. But all my properties are in my own name, no LLC, long list of reasons why.
34:21 Dave Meyer? This is such a big debate that we can't get into all of it today. But if you want to go probably see the single most discussed topic on the BiggerPockets forums, this is probably the biggest debate. I am the exact opposite, Deanna. I own every single property I own in an LLC. Just give me one major reason why you've never put it in an LLC.
34:40 Speaker 01 None of the benefits people expect. That would be the biggest reason. There are no tax benefits. I get every tax write-off you do.
34:45 Dave Meyer? That's correct.
34:46 Speaker 01 Except I can't write off the cost of having LLC, the cost of paying my CPA for each LLC that they file on or renew.
34:51 Dave Meyer? It's a lot.
34:52 Speaker 01 Right. So the second one, if you're in California and your, your real estate's in your own name, like my brother, you're not rent controlled.
34:58 Dave Meyer? Oh, interesting.
34:59 Speaker 01 You put that in an LLC, all of a sudden it's owned by an entity, rent controlled.
35:02 Dave Meyer? Oh, I didn't realize that. That's really interesting. Okay. Well, I, I've always done it just for the liability reasons, because in case someone sues me, I can isolate the assets in each LLC. And I started investing with partners. And so I've kind of just like started doing it with LLC and then I just kept going.
35:20 Speaker 01 So if I could, well, the last thing on this before we go to the next one, but if you have properties and you put them in LLCs and you continue to buy properties, awesome.
35:27 Dave Meyer? Yeah.
35:28 Speaker 01 My concern is always that new investor that doesn't even have a credit score or savings yet that's thinking I'm going to form an LLC. I won't know how to name it. I won't know how to pay myself from it. I won't know how to separate my finances. So it's not commingled. I won't know that it's more likely to get me sued. It's more, it's going to make my insurance costs go up. It gets me about a half a point higher on my interest rates for my loans. If there's all these barriers, they don't even own a rental yet. That's who I'm always concerned with when the LLC debate.
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41:19 Dave Meyer? All right, we're back with Deion McDealy. We've talked about five of his Deionisms. We don't, I don't think we're gonna have time for all of them. So let's just, I think we've touched on a few here. So Deion, why don't you just name a couple and then we'll dive into one or two more as we have time?
41:32 Speaker 01 Yeah, I think one that we've covered pretty well is I don't want a big portfolio. So many people when they start, they want 1,000 units or 500 units. I'm not even sure I want the 18 that I have now. The other one is I don't touch my equity. I've never done a HELOC, never done a cash-out refi, never sold for a 1031 yet, I might. But the ones- That I think really matter. And I get this from Grant Cardone, the first one. It's why I prefer to invest in a blue state and not a red state. Most landlords say, I want to invest where it's landlord friendly and the landlord tenant laws lean towards the owner. And I'm the opposite.
42:02 Dave Meyer? I'm so curious about this because I think this is such a subjective thing. What state is better for real estate investors? And people treat it like this objective thing where there's just like a right answer. And I'll give you my opinion after this, but let's hear yours first.
42:17 Speaker 01 You're 100% right. It depends on the person, the goals, the timeline, where you have trusted boots on the ground. Right? That's where you want to invest. But one of the, one of the main reasons I like to invest in a state like Washington, which you can Google this to verify. It's the highest appreciating state for the last decade.
42:31 Dave Meyer? Yes, it is.
42:32 Speaker 01 Mostly because it's a blue state. They keep threatening rent control every year. It went into session last year. It didn't come out. And just because it was talked about in 2024, my plan was not to do a rent increase. I do 5% every other year after the binder strategy. But since it was talked about and it was in session and it could happen, I went into the binder with all my tenants. My rent roll across the board went up $3,300. So about $40,000 in profit last year, just because rent control was talked about.
43:01 Dave Meyer? Interesting.
43:01 Speaker 01 And then in blue states, it's a long process for permits. It's expensive. The threat of rent control limits investors' desire to build here. So there's less building. It means massive appreciation.
43:10 Dave Meyer? Absolutely. Yeah, this is a supply and demand issue, right? Like you see in a lot of more red states permitting is more abundant. And again, there are pros and cons to this. This probably means housing is more affordable in those markets because there's greater housing supply. Like there are definitely trade offs here, but if you're looking at appreciation, blue states definitely have greater appreciation on average over the long run. If you look over 10, 20 years, Dion's absolutely right. I'm curious though, Dion, because you said about rent control, they went up last year. But what happens if rent control actually does get passed? Then what happens?
43:43 Speaker 01 So I can make an entire video out of just that. It makes the landlords stupid rich and it makes more tenants homeless.
43:50 Dave Meyer? Yeah, it's a really unfortunate idea.
43:52 Speaker 01 It is unfortunate. My brother hasn't raised rent since 2006 on some of his tenants. And because they're talking rent control, he's probably going to, but I would do. Five percent every other year. I even mentioned it from two thousand thirteen to two thousand twenty, I did five percent every other year. And now Washington wants to cap it at seven percent per year. And since I won't be able to do an adjustment for a black swan event, like a pandemic, like insurance tripling because of fires in California, whatever is going to happen in the future. Since I can't do big adjustments, I'm forced to do seven percent per year. So I would get on a two thousand dollar rental, a hundred dollars more in two years. Versus, I will now get a hundred and forty dollars more per month, per year.
44:35 Speaker 01 I'll triple my income, my profit because of rent control. It's what people don't understand. It's historically been proven, every city where it happens, rents push up the maximum allowable amount every single year. And then landlords aren't stupid. So if you have a tenant who falls behind for whatever reason, or they were behind when it kicked in, you have three legal ways. You have ninety days to get out, I'm going to rehab the unit. You have ninety days to get out, I'm going to sell the unit. You have ninety days to get out, I'm going to move into the unit. So we make more people homeless in a rising rent situation. We make landlords richer. So last year, I reached out to all the legislators and I said, hey, here's what happens if rent control goes in. I get richer, more tenants, rents go up. Criteria to screen for tenants goes up, you make more homeless. This year, the greed side of the landlord is saying, hey, maybe rent control is not a bad thing.
45:19 Speaker 01 I don't mind money. Money's not a bad thing. It limits more building, it'll cause more appreciation, I make more money off my rents. The human in me is like, no, I think I'm going to message all those legislators again and say what a bad idea this is.
45:30 Dave Meyer? Yeah, it has just been proven time and time and time again to have the opposite of the intended effect. So I, I am with you. I think it's just very silly, but I, I think it is a really important point about this idea that like, oh, certain places are landlord friendly, certain places are tenant friendly. First of all, people look at those on a state level and it's not always the case. You should be looking at them at a metro or at least a local level. And then the other thing is this just depends on your strategy. If you are a house flipper, being in a place where there's constricted supply is probably going to be in your best benefit. But if you want to do build for rent, maybe being in a place where it's easier to get permits makes sense to you.
46:09 Dave Meyer? Like it really just depends on your strategy. And I think Dion makes a great point of thinking critically and actually just aligning his own beliefs to the places where he's investing. All right, Dion, I think we have time for one more. Give us your last Dionism for the day.
46:25 Speaker 01 The last one, and this comes up so much in, in, in, in every format for educating yourself on real estate is, is the value add proposition for real estate. Could be the BRRRR method. It could be buying and adding RV pads. It could be anything where you want to buy and add to it. As the lazy investor, this is one of my Dionisms where I didn't want to do that. I, I, I invested for 10 years without ever doing one rehab. I finally did a BRRRR after I retired. It's my first and last one.
46:52 Dave Meyer? It's just too much work.
46:53 Speaker 01 The money that can happen. So my BRRRR made me about $300,000. So I'll just break it down really quick. I bought a duplex for $400,000 off the MLS. I put about, so that the contractor said 30, I estimated 50, I set aside 80, and I spent $62,000 rehabbing it.
47:07 Dave Meyer? Okay.
47:08 Speaker 01 Uh, it's, it's now worth about 790.
47:11 Dave Meyer? Wow.
47:11 Speaker 01 So if I were to sell or do a cash out refinance, I'd get all my money back, plus about 200 and something thousand dollars after expenses of refinancing or selling. So I made a couple hundred thousand dollars. It's absolutely not worth it. Took 10 months. I would rather had 10 months scuba diving in Thailand and Colombia than 10 months managing a rental. If I was working full time, I wouldn't have had the time to manage the rehab as much as I did. So it probably would have costed more and taken longer to do. So in growth mode, so many people get excited about the BRRRR because they hear none of my money is in the thing and I'll make a couple hundred dollars a month and I can rinse and repeat it a few times. So my, my Dionism is I want right from the MLS, I want very little work. I want to spend $2,000 or less usually on the property. I want tenants in place. I'm not looking for value add. I'm looking for time.
47:53 Speaker 01 Because the, the magic trick is real estate is a get rich quick scheme. You just have to understand that 10 years is quick.
48:01 Dave Meyer? I love that. That's so good. I, I always say that's not a get rich quick scheme. And I always point, I've done the math. I did this on a recent episode where I was talking about 10 to 15 years is a reasonable timeline. And you're right, it is quick. The average career in the United States is 45 years. So if you could do this in 10 to 15 years, that is absolutely by any objective measure quick, except when you compare it to some of the unrealistic expectations that are sometimes peddled out there.
48:30 Speaker 01 You're right. It's not the way to retire early. David Green, you have actually mentioned one time, he says, if you need $5,000 a month to retire and you get to $5,000 a month in cash flow, you don't retire. And I agree with him.
48:40 Dave Meyer? Totally.
48:40 Speaker 01 Because that would be silly. Like one eviction, one pandemic, one eviction moratorium, whatever, and you're tanked. But if you need five and you get to 20.
48:49 Dave Meyer? That's the place.
48:50 Speaker 01 Now, but it takes 10 years to get to that 20.
48:53 Dave Meyer? I don't know about you, but for me, I've been doing this for 15 years. It's gone fast. I don't know how you feel.
48:58 Speaker 01 When I was 25, I think a couple of years felt like forever. But when I hit 40, I thought, and this is my, this is how I ended a lot of videos, you are going to be alive in five years. You should start investing like it.
49:10 Dave Meyer? Oh, totally. Yeah, that's smart. I like that. Well, Dion, this has been a lot of fun. I really appreciate it. And honestly, just on a personal level, resonate with a lot of what you're saying. I really like these contrarian views and just shows that you're thinking a little bit outside the box and thinking for yourself and figuring out what works for you. And I know that when you're a new investor, that's not easy. You know, you should be listening to this podcast, you should listen to Dion, you should listen to people and try and educate yourself as much as possible. But as you grow as an investor, you're into your first deal, your second deal, just think critically, decide if the things that are common knowledge or common advice in this industry actually apply to you. And don't do them just because other people are telling you to do them. Do them
49:52 Dave Meyer? because they actually are aligned with what you want. I think that is probably one of the hardest things to do in real estate is like figure out what you actually want. But Dion, man, you're such a good example of that. You know exactly what you're trying to accomplish and you stick with it with really incredible like discipline and you manage to avoid that FOMO that I think captures a lot of people in this industry. So again, congrats on all your success and thanks so much for sharing your insights with us.
50:18 Speaker 01 No, thank you very much. I really appreciate the opportunity to come on here and share some of these thoughts with people because. In real estate or investing, there is no one right way, but there's a one right way for the person watching.
50:29 Dave Meyer? Absolutely right. Well said. Well, thank you so much for listening. If you think anyone you know who's interested in real estate, who's buying rental properties could learn something from Dion, I bet everyone in real estate could. Make sure to share this episode with them. We'd really appreciate it. Thank you again for listening. We'll see you next time.
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