Retired in His Mid-40s Using the Perfect “Small” Rental Property Formula

Dave:This investor can self-manage 150 units. You can manage one or five or 10. Today the lumberjack landlord is here sharing how he’s built a life-changing portfolio out of duplexes and plexes, all with low vacancy and almost no tenant headaches. Hey everyone, welcome to the BiggerPockets podcast. I’m Dave Meyer, head of real estate investing at BiggerPockets. Our guest today is Matt, the lumberjack landlord. Matt has built himself a really impressive portfolio that allowed him to retire early from a tech career last year, but he didn’t do it by scaling to bigger multifamily properties. He owns more than 50 different properties, almost all of them duplexes and triplexes. In this episode, he’s going to share a few of the systems he’s created to increase his time freedom, even while consistently adding more units. These include low cost renovation ideas that can reduce your heat and water bills as much as 20% every month. How working with local banks to lock in favorable financing that big national lenders just can’t compete with and stick around to hear his latest, really awesome fun project, converting a local jail into housing units. Let’s bring on Matt. Matt, welcome to the BiggerPockets podcast. Thanks for being here.

Matt:Thanks so much for having me. I would light you if I was telling you it wasn’t a dream coming true to finally be here. Very awesome and fresh off of BP Con, which was absolutely spectacular.

Dave:Love hearing that.

Matt:It was awesome.

Dave:So much fun. Yeah, so thanks for coming to be Pecon and thank you for being here. We’re excited that you’re here. Maybe just start by giving us a little bit of background. How did you find yourself in real estate investing? Where were you in life when you first started getting into it?

Matt:Yeah, so me in a short description is I’m a ninth grade dropout, so any room I walk into, everyone’s more educated than I am. Dropped out, started working every job I could and then eventually got into software, worked my way up through a company and lost all my money in the stock market explosion in 2000, 2001.

Dave:Wow.

Matt:Lost it all then, and it was literally every dime I had,

Dave:Oh god.

Matt:Then I’m start doing research on what assets can I buy that actually give me a return on my capital, but they also give me cashflow. It’s a pretty short list of things that appreciate and give you cashflow. There’s a limited number of stocks that do that with paying dividends. There’s a bunch of different little niches out there, but I looked at it and then I said, alright, well what do other wealthy people do? And then I looked and 90% of millionaires became that through real estate. And so I started buying in oh three and the first place I bought, I was doing house hacking before anyone knew what that was called, a mortgage broker. And I said, Hey, this is a house that I want to buy. And he goes, alright, well here’s all the information I need. I get him all the information. He looks at it and goes, you don’t qualify.

Dave:Even in 2003 they were saying, you don’t qualify.

Matt:Yeah,

Dave:That’s pretty rough. They were giving anyone a mortgage. Then

Matt:I found the only mortgage broker on the planet that didn’t do Ninja Loans. Apparently you might have. So he says, yeah, you just don’t qualify. And he said, well, what have you seen other people do? And he just said, get a roommate on a lease. He goes, I’ll count that income towards your income and you’ll be able to afford the place that you’re looking for if you get at least a thousand bucks a month. So I went on the search, send a bunch of people, acquaintances, Hey, want to be a roommate? And found one. And so that was it. The rest was history. I bought my first place and I house hack. That was the only way that I could afford it.

Dave:Awesome. Well good for you. It sounds like you overcame a lot of pretty challenging situations very, very early in your career, but maybe catch us up. Where are you today?

Matt:Today we are 53 buildings, 150 plus units and about 400 tenants. But we really specialize in small multifamily 2, 3, 4 unit stuff because bigger isn’t always better.

Dave:What is it that you like about that asset class? More than wanting to go into commercial or any other asset class?

Matt:What really attracted me to them was, as you know with larger commercial properties or properties that are five units or greater, the value of the property fluctuates based on the amount of rents essentially collected. And so you can do a value add, you can make it a much nicer place, and then you can get more money for the rents, and then that means that the property is worth that much more money. On the residential side, four oh units and less, you don’t have that option. It’s really much more driven based on what the last thing it sold for. So the idea was creating something that I call a rent box, which is understanding 17 crucial categories across the entire spectrum that tells me this is what a unit is renting for, therefore this is what my unit is worth. So it was then targeting and finding every type of asset, two, three, and four units as they come on the market. Are they well under market rents? Are they well cared for buildings? I don’t want turnkey because there’s no value opportunity there, but that was the challenge. The challenge was how do we grow a portfolio not at a certain pace, but at a certain point where every deal that we do is a great deal.

Dave:I love that. So it’s not a door count. You never were like, I need to get to 150 doors. If you listen to the show, I hate door count. I think it’s the silliest metric. So it sounds like you essentially created your own algorithm, for lack of better word, right? You’re going through these 17 variables, you’re evaluating. Can you share some of ’em with us?

Matt:Sure. So it is whether the unit has been redone or not, to what grade has it been redone, right? Have they done painting? Okay, have they done painting and trim work? Have they done painting trim work doors and kitchen? Have they redone a bathroom? Have they redone the floors? Have they redone the roof? What’s going on with the basement? Then it’s things like location because I can’t change that, so I don’t want things in a D zone, but I’ll buy a D property in a B zone because I can make that D property a B property in a B zone and now it’s worth something.

Dave:I love this approach. I feel like a lot of people like to label themselves as, I’m a two unit investor. I’m this kind of investor. I think most people are just kind of opportunistic within their own niche, and it sounds like that’s kind of what you’re doing. It’s like you don’t have some pie in the sky thing, but anytime something comes across your desk that fits your buy box and you feel good about, you’re going to do it. And you can do that because you spend so much time and effort refining a buy box that you know can execute well and that sort of fits into the lifestyle and financial goals that you’re looking for.

Matt:Yeah, definable, repeatable, executable. I can define it, I can repeat it and I can execute on it. Whatever the plan is, whether it’s large reno or small Reno or light Reno,

Dave:It’s an amazing approach to real estate. We all joke, everyone calls this boring, it’s not boring. This is the way to go. This is just the right way to approach real estate. I’m sorry, I invest in syndications and do some of this other stuff, but my core is just buying these duplexes, buying plexes. This is a really good risk adjusted way to approach real estate. So I couldn’t agree more there, but I want to hear a little bit more about how you manage these properties. This is a lot, 150 units. You do this by yourself, so I’d love your input on that, but we got to take a quick break. We’ll be right back. Running your real estate business doesn’t have to feel like juggling five different tools. With simply, you can pull motivated seller lists, you can skip trace them instantly for free and reach out with calls or texts all from one streamlined platform and the real magic AI agents that answer inbound calls, they follow up with prospects and even grade your conversations so you know where you stand. That means less time on busy work and more time closing deals. Start your free trial and lock in 50% off your first month at re simply.com/biggerpockets. That’s re S-I-M-P-L i.com/biggerpockets.Welcome back to the BiggerPockets podcast. I’m here with Matt Hawkins talking about how he scaled using a repeatable formula that honestly most people listening to this show could realistically achieve. He’s now sitting at 53 properties over 150 units and you manage these by yourself, right?

Matt:Yeah, essentially it’s myself and my wife. So up until only three or four years ago, about four years ago, I did everything, but I was also working a 60 hour a week job as a software executive. When somebody says they don’t have time, listen, I built my 150 unit portfolio while I had a full-time executive job.

Dave:It’s definitely possible you can do it. It’s a

Matt:Thing. It’s definitely, I’m not the only one in the world that can do it. Everybody can do what I did. It’s just a matter of where I think a lot of people struggle is systems and processes and being an executive in a software company, we have systems and processes. Everything we do is systematic. It’s got steps to it. And so having that career and being kind of a company fixer is where my skillset was able to shine through because we’d encounter a problem and then we would understand how do we address this more quickly, continue to give a great experience to the end user, which is the tenant, and then allow ourselves to grow. Very often people do the growth and then figure out systems after. If you figure out the systems beforehand, then it allows you to grow to a level that you never thought you could grow to because it just snaps in. It’s just adding another piece to it. It’s really powerful. I self-managed until we were 120 units, I

Dave:Self-managed. Oh, wow, okay.

Matt:Yeah,

Dave:That must’ve been crazy.

Matt:It was nuts. There was always something to fix, always something to do. But the idea was when we would acquire an asset, we’d spend some of the money in that first year to make sure that that asset became stabilized. That’s really the framework that I essentially invented for myself, which was acquire, stabilize, and then optimize. Very often landlords get all psyched about acquiring and then they forget about stabilization already onto the next deal, and then almost no one optimizes.

Dave:Almost

Matt:No one.

Dave:Yeah, that’s so true. So when you say stabilize, I just want to make sure the audience all understand that means you’re taking a property, C class, B class, property, whatever, and investing right up front to one improve I guess systems make upgrades, probably drive up rents, ensure a better tenant experience, but also frontloading some of the work so there’s less maintenance repairs, right?

Matt:Yeah. Our introductory letter to tenants when we acquire a building is, Hey, we’re really excited to be your landlords. Don’t be nervous. We’re not raising your rent, but we do have some questions for you.

Speaker 3:We’d

Matt:Like to understand two or three things that you were asking the previous landlord for that he never took care of for you.We recognize that we do things a little bit differently than they do them, so we’d like to understand what those things are to see what we might be able to do for you to get those things taken care of. It’s the fastest way to unearth issues in the building. It’s the fastest way to make the tenant happy. We’re making a deposit into the tenant, recognizing that they need to know we’re not here just to raise your rent. We’re not here to evict you. We’re here to partner with you on the new asset that we have, but it’s your job just as much as it is ours to take care of it. So we tell them, if you see a leak, if you hear a leak, any of those things, please call our emergency numbers. We like to say, fire, flood, gas, blood, pick up the phone, give us a call. So in managing it that way, we’ve fully automated our entire process. So now phone doesn’t even ring when we get an emergency call. And the way that we’ve kind of built this framework, it’s says all procedure, it’s all process, it’s all standardized. So that way they get a quick return phone call, things are addressed quickly, and they get a much better experience than they would from most people.

Dave:I absolutely love that. I just think this is the kind of mutual benefit investing that we talk about on the show. You are benefiting from this because you have an asset that’s going to be stabilized, people are going to take care of it. They’re going to like living there. You’re going to have lower vacancy, you’re going to have lower repairs, so much good stuff, and the tenant loves living. You’re providing a service to your community, to your tenants that they’re going to like. I think this is just the right mindset for how to have a sustainable portfolio. You do have to come out of pocket a little more upfront, but I promise you ask any experienced investor, it is a worthwhile ROI over the long run, and you also just get to provide great housing to your tenants. But how Matt do you underwrite this?I think that’s something people get hung up on is if you’re buying, let’s just throw out numbers. I’m just make them up. $400,000, duplex, whatever, you’re going to have to put a hundred grand down. If you’re putting 25% down, then you spend 30 grand, 40 grand renovating this, it makes your cashflow probably look negative, at least for the first couple of years or the first year. So how do you think about this from a math and underwriting perspective to make it make sense to you and make sure that you are still getting the kind of deal that you want to add to your portfolio?

Matt:Sure. So for the first 13 years, I did nine house hacks in 13 years.

Dave:Wow, that’s awesome.

Matt:Nine times would move in, do all the work that I could possibly do, get one side done, get it rented out, then move over to another side that wasn’t done, live in that, get that done and then rent that out. But I was buying the next place, but I would do a cash out refi because now the value of the property has far exceeded what it was because I added all that value. And then after I did that the first four or five times, I then started hiring contractors that could do the work a whole lot faster and gave me a better turnaround and not living so much in construction mess. But as I’m underwriting deals now today, the idea is we’ve done this a number of different ways. I think what’s really interesting is in the land of Berg, I was doing it before you had no BNRs and that was the lifestyle. But what we basically did to help get deals done there was we would go in, we would get everything priced out, understanding exactly what things we had to upgrade, not want to upgrade. There are the things that actually drive getting you more value and more rents and more perceived value by a potential tenant than things that don’t.

Dave:The

Matt:Roof can’t leak. The

Dave:Heat’s got to work.

Matt:Yeah,

Dave:The heat’s

Matt:Got to work, but outside of that, what are the things that we can do to make it a better experience for them? We can use better cabinets, we can use better appliances that don’t break as often. We can change out the light setups. We change out light setups in a lot of our apartments for a thousand or 1200 bucks and everybody walks in and instead of seeing that light from Home Depot that we’ve all seen a thousand times with the metal tip, instead of seeing that, you’re seeing actually a nice light layout where it’s actually they took care of what this looked like.

Dave:Are you saying that you have to put out a competitive product in the market to be successful? Amazing. Right? I know. Amazing.

Matt:But that’s the best part is you can actually put something out that is rehabbed not as nice as brand new, but close enough where even if you’re taking a 20% discount over new, you’re getting a 20% premium over existing.

Dave:Yeah, exactly. I think so many folks in real estate get caught up on doing things cheap, and it is pennywise and pound foolish. It is. You are trying to save money upfront and you are not thinking about everyone notices that when you’re a tenant and you walk into that, you notice it. And especially in the environment where we’re going into now where it’s not as easy to get tenants as it was a couple of years ago. You have to think about how you stack up against your competition. You can’t just throw anything up on Zillow right now and expect to get rent or rent growth in the same way. And so these kinds of little things, it’s not even that much money. It’s 50 bucks here, it’s a hundred bucks there usually on a rental unit that you should invest because this is an investment. That’s the whole definition. You should put that money in upfront when you can because it’s going to get you higher rents, it’s going to get you great tenants and it’s going to improve the value of your property as well. So I just really want to emphasize how important this is to everyone listening right now.

Matt:I agree. I think as people look at it, I think as they look at their asset, this is what this is. It’s an asset. I think that when you’re able to understand where the improvement should be made, what’s going to get you a return and get you a better tenant, these are essentially the path to where you’re going to bring your successful business. If you ever had to sell, do you want to sell a house that has a bunch of issues or do you want to sell a house that’s pretty much turnkey. I don’t buy turnkey. There’s no money to be made there or not enough money to be made there. My returns are quadruple what turnkey is. I’ll do the extra

Dave:Work. I want to shift gears a little bit, Matt, because we talked a little bit about stabilizing, but you also mentioned optimizing, which I think is always important, but right now in the more expensive market, I see a lot of investors turning their attention less towards acquisition and more towards optimization. So

Speaker 3:Tell

Dave:Us a little bit about what you mean by optimizing and if you have any processes or systems, our audience should know about that.

Matt:Sure. I mean, the first thing is if you look at the maintenance snowball as you increase number of properties, the reoccurring problems that you don’t take care of will slow you down from being able to acquire additional assets. They’ll do that by two things one time and two money because you’re constantly throwing money at not fixing the problem the right way. It’s better to bite the bullet, make the repair, make the repair the right way, and then close the chapter on that repair so you can then move on to the next. So one of the things in optimizing the business is get all the rats taken care of, get all the reoccurring issues that are constantly coming up, address those, fortify the house, get it ready, make sure that all of the ongoing stuff is no longer ongoing thing because that’s going to slow you down from acquiring additional assets. Other ways to optimize properties on an individual basis, make sure that heating systems are clean so they’re running as efficiently as possible. Make sure that you put yourself through the process of evaluating. I’m going to say it toilets. I’m a toilet dork. It’s it

Dave:About toilets.

Matt:Yes, who cares about them guys that own a fourplex that has two bathrooms per unit, that’s eight toilets and every single time it flushes, it’s a 3.6 gallon flush.

Dave:But you could have half that.

Matt:I’m using a toilet. That’s a one, two,

Dave:Yeah. Oh, a third of that. That’s even better, a third.

Matt:But if you look at a typical building, and if you figure, and this is how dorky it gets, if you figure number of flushes and then this is what the number is, you could literally be saving a hundred to $200 a month in water and sewer fees.

Dave:Unbelievable.

Matt:That’s money that ends up at the bottom line at the end of the year, and all it took was an evaluation of that, being made aware of the problem, and then swapping out the toilet, which is a couple hundred dollars expense, which largely per toilet pays for itself within a year, and then you’re making that much more profit moving on. So very often people are looking for that, what’s my next deal? What’s my next deal? What’s my next deal? I’ve got good news. You probably have 10 deals that you already have or five deals that you already have where if you just optimize them, you’d create a whole nother house plus of revenue.

Dave:Wow, that’s such an awesome tip. I’ve never heard that before. And yeah, I’ll be honest with you, I don’t know how much my water bills have gone up. It’s probably a lot, and I’m not paying attention to it. It’s like, Hey, I’ve certainly noticed how much my insurance bills have gone up and my tax bills have gone up, and maybe that’s sort of blinded me to some of the other expenses because mad about the other ones. But clearly you’re showing that these kind of tweaks, especially if you’re buying regular old properties, the difference between making $200 more a month is the difference between a decent cash on cash return and a really good one that actually does matter. So it does. It’s kind of attention to detail. Matt, I think is super important and impressive. I’d love to hear more about your optimization and property management advice, but we do have to take one more break. We’ll be right back. Welcome back to the BiggerPockets podcast here with Matt Hawkins talking about managing, optimizing your portfolio. Before the break, Matt gave us an awesome tip about checking out your water bill and just having, I’m sure, Matt, it’s more even just about the mindset of just looking for those things. It’s not water in particular, butJust sort of leaving no stone unturned and figuring out how you can optimize and make more money still providing the same good tenant experience. There’s no downside to doing something like that. I personally, I don’t think vacancy is going to go up like crazy in the next couple of years, but every day now you hear more about layoffs and it’s kind of hard to not think like, oh, our vacancies going to go up, rent’s going to grow. So I believe that as you grow in your investing career, you go from thinking about acquiring and raising rent to just realizing if you could just keep people in the 10 units and happy, that’s so much of the game. So do you have any advice for our audience on reducing vacancy or minimalizing it?

Matt:Yeah, so I think it’s really a few things. One thing is Dion talks when he talks about his binder strategy, getting tenants to ask for a rent increase. I mean, yes, that’s part of it. But the other key too is that you also get to that point where it’s almost unavoidable. They’re not making enough money. They’ve been a tenant for a number of years. Every single time you talk to ’em about anything, money, they start to tweak a little bit and you just say, listen, I can appreciate that what your budget is, but you need to appreciate that all of my expenses over the last six years, they are all up

Speaker 3:Used

Matt:To pay. When we had this size portfolio just five years, four or five years ago, we used to pay maybe 40 to $50,000 a year in water. Now we pay 30 to 40,000 a quarter. That’s how much that’s gone up. So as we’re looking at managing, again, managing the asset, whether it’s the water bills and that sort of thing, but other things that you can do to optimize, if you’re paying for heat, you need to get the utilities out of your name, whether it’s flow metering, one of those different types of features that you add or adding even another heating system or adding mini splits. Those are really popular in most of the country. There’s those types of things. Always looking for solutions to how you can reduce cost, and that is if you’re paying for heat, add more insulation in the attic cap space.That’s a great example. Things like if you’ve got a drafty window, a couple drafty windows, change out the couple drafty windows and use that as the start to, hey, we’re going to really improve the property down that path. If you’ve got first floor units and you’ve got a basement, making sure that you’re insulating the bottom of that floor and that you’re putting plastic on it to actually keep the moisture there down in the basement. If you’re a New England or Chicago type where you have those big huge basements that get freezing cold. So there’s all these things where if you start to look at the house as a system, it’s an asset, but there’s a system within the house. You can start to pick off one thing after another where you say, I was paying for heap, but now my heat bill is 15% less. I was paying for water, but now my water’s 15 or 20% less. I was paying for electricity, but because these are the types in their units, and now I’m paying 15 or 20% less. Well, what does that mean at the end of the year? That means you’re making 15 or 20% moreOn your asset than you were making before. It’s that returning right to your pocket. And I like to say it comes home, but that’s the key for people is making sure to optimize the asset more than just get the next deal. Because the people that usually blow up in a bad way in the real estate investment path are the ones that continue to add, add, add, add, and they never actually get them. Right.

Dave:Yeah. You’re going a mile wide and an inch deep instead of the opposite of just trying to be really good at every deal that you own. I mean, I think that’s a fantastic approach and it’s the right mindset, and you’ve been talking about it in terms of financial return. I just want to also say it’s the right mindset for longevity because that’s how you win in real estate is you stay in the game and this is a great way to stay in the game. And I get it. When you’re first starting out, you may not have a lot of capital to be able to invest right away, but looking for these opportunities and weighing, there’s math you could do weigh the opportunity of optimizing versus going out and buying the next deal. Or maybe you’re in a house hack and you need to wait a year to move into the next one. If you save up a little bit of money, think about how you can optimize your deal, the current deals that you have in the meantime while you’re waiting to go buy that next deal. It’s a mindset that I think really is about, it’s what you would do for your own home, right? It’s just like you, if you want to live in this home for the next 20 years, you would make these kinds of upgrades. You would do these kinds of things. You should be thinking about your rental properties in the exact same way.

Matt:Yeah.

Dave:Well, Matt, I could talk to you about this all day. So we’re going to have to have you come back. But you said you were renovating a jail and I’ve been thinking about that for this entire episode. And so now I need to ask you about what is going on there.

Matt:As you get a bigger portfolio, it allows you to take a little bit more chances.And so as you find these weird assets, which is one of the towns that I invest in, they had a police station slash jail that they were decommissioning or had been decommissioned. They’d move into their new building. This thing had been vacant for years. I approached the city, they said, well, there’s a process. They had to put it out for bid and all this other stuff, and they do all that. And I said, that’s fine. I’m still going to win the property. But the amount of square footage that I was able to buy it is 8,000 square foot jail police station.

Dave:I can’t even imagine what you, are you in demo yet? How far along are you into this?

Matt:We’ll be live within 60 days.

Dave:I am am So curious what that renovation process was like. Was it very different from a regular home?

Matt:Well, so what we did was we kept the jail cells really, actually, yeah, not even joking. We kept the jail cells because part of our concept was doing a community play area where younger kids can come, lots of single moms and grandparents watching kids. We wanted to do something very affordable where they could bring their kids come and play, but also get some food from a cold kitchen next door. So cool. So we are working with partnering with the right and partnering meaning that they’re going to own the business, but we just want to work with them and say, we want our business to benefit yours. And so we left all the jail cells in the back of the building, and so kids will be able to go eat in a jail cell after they finish playing and get some food. They’ll be able to go eat in a jail cell.

Dave:Are the bars still up or is this They are.

Matt:They are.

Dave:That’s wild. Yep,

Matt:They are.

Dave:Man, I got to come see this one time. I would love anytime. It’s awesome. Anytime. Sounds very fun. Very cool. What other projects are you up to these days?

Matt:I mean, the gl, we’re trying to finish that off. We really care a lot about veterans, and so one of the things that just chaps me is listening to people and how badly we need veteran housing. And then they don’t build any, they don’t build any, they don’t create any rents. They don’t have a commercial project that they at least use some of the building for disabled vets. So anytime we buy a building that has first floor exposure that’s in a downtown corridor, we always go to the town, ask for a variance to do at least a couple of units. We always ask for more, but we know we’re not going to get approved, so we just try and get approved for some. So adding some disabled vet housing is really big for us because we want to give back to those that fight for us and fight for our country.

Dave:Amazing.

Matt:So that’s a big part. And then the other side of it really is really just trying to spend more time with investors and trying to teach them it’s not get rich quick. It’s get rich for sure.

Speaker 3:It

Matt:Takes a decade or two, and when you do it, you’ll be in a position that you can really, truly live whatever life you want to live on the other side. I love that. And that’s what we want to spend our time focused on doing now.

Dave:Well, Matt, thank you for being here, man. I just really appreciate your whole mindset about real estate. I think that you have a very good approach to this, figuring out what you want, the kind of lifestyle you want, buying the right kind of deals, not getting caught up in the hype, creating mutual benefit for you and your tenants, giving back to your community and vets. It’s such a cool way of being an entrepreneur. Really have a lot of respect for the way that you’re doing it. So thank you for sharing your story and for coming on the show.

Matt:Oh, my pleasure. It was a blast, just like I expected it to be, so I appreciate the time, Dave.

Dave:Yeah, we’ll have to have you back. I have way more questions about optimizing your portfolio, so Sounds good. Matt, you’re, we’re going to call you again soon. Look forward to it. All right, and thank you all so much for listening to this episode of the podcast. If you like me, think Matt has a great story, really inspiring. For a lot of people who want to get into real estate investing, make sure to share this episode with them. Thanks again. We’ll see you next time.