124 Units in 4 Years by Only Investing in Small Towns

Dave:
Hey everyone, and welcome to the BiggerPockets Real Estate Podcast. I’m Dave Meyer. Joined today by Mr. Henry Washington. Thanks for being here, man.

Henry:
Hey, thanks for having me, man. This is always a pleasure.

Dave:
Yeah, and today we’re talking about something I know you and I both have a passion for, which is picking the right market. This is obviously something that’s on top of most people’s mind, and I personally spend a lot of my life looking into different real estate markets, both professionally for my job at BiggerPockets, but also for my own personal portfolio. But the truth is, you know, after doing so much research into this stuff, what I’ve found is that you can find deals in almost any market. You just have to know what strategies work in each market. And today’s investor story, we’re gonna hear from someone who’s making deals work in a place that I personally have never really considered investing

Henry:
In. That’s right. Today we’re gonna talk with Dylan Osmon. And Dylan shares exactly how he’s finding and making deals happen in small towns. You’ll also hear about things he’s changing in his strategy today that can apply to any investor. Yeah,

Dave:
I’m super excited about this. ’cause I think, you know, a lot of times I’m personally biased, I overlook small towns. I kind of just look at big metro areas and look at these big macroeconomic trends. But there are obviously deals to be had and strategies that work and advantages in investing in small towns. And we’re gonna hear all about that from Dylan. So let’s jump into it. Dylan Osmon, welcome to the show. Dylan, you did your very first deal back in 2020, which is a pretty bold decision, I might say. I don’t think a lot of people were doing their first deal in real estate back in 2020, but kudos to you for doing it. But it sounds like it didn’t actually go the way you were expecting. So can you just tell us a little bit about that deal and maybe a little bit about what you learned from it? Yeah,

Dylan:
So I, I up the deal before Covid kind of started coming across the US anyway, so kind of building out this story, I had taken a corporate job after college, and this job was a long ways away from home. So I was kind of out of my element and it was a commodity trading job. And I was working that, I was in my education phase of that job. And in the middle of this job, well, I guess covid hit. And in the middle of this job I went and bought a triplex. And that was in March of 2020. And about June of 2020, I got fired from that job. So I was living about 45 minutes away from the property. Uh, it’s down in south Mississippi and I had no job, really no money, and a really crappy property that I had to fix up. So a lot of lessons came outta that time. Um, and I, I’ve got some great numbers on that property, man. It’s, it’s stupid kinda what I bought it for. All right,

Dave:
Well, let, let’s dig into that a little bit. I wanna hear a little bit more. So you bought a triplex, it sounds like it wasn’t in great shape. What was your intention? What was your business plan when you bought that property?

Dylan:
I was listening to BiggerPockets at the time. Uh, I always knew I wanted to own real estate. I didn’t have much of a roadmap, but something in me just kind of made me wanna buy real estate. I think it was probably listening to BiggerPockets. Um, that property was on the MLS, it was in the, it was in the time you could still buy properties on the MLS for, for good prices, right? So I locked it up for 45 and with like $2,000 towards closing cost. And by the end of that we had the inspection done and the inspector was like, this is the worst property I have ever been in <laugh>

Henry:
<laugh>.

Dave:
Well, when you said 45, I was like, where’s you’re missing a zero? Like, there’s not enough digits in that, in that price right

Henry:
There. 45,000 for a triplex.

Dylan:
It gets better, it gets better. So there was like a pool of water underneath this thing in the crawl space where like toilets and bathtubs have been draining just straight into the crawl space, right? Um, but this property had a lot of pros to it. Like they had just sub-metered all the water and the electricity, it had a new roof on it. So I had all these things, but I was just kind of blind to the obvious. So anyway, I renegotiated down and we ended up getting this thing.

Dave:
Wait, hold on, Dylan, I have to ask you something like, I know people call properties a <inaudible> hole, but like, was this literally a <inaudible> hole? Like there was just a pot <laugh>.

Dylan:
This, this property had a weird thing with chickens. Like there was chickens living in the crawl space. There was a chicken leg that was tied up on a tree when I bought it. I don’t know, there’s just a bunch of stuff going on.

Henry:
This sounds like the most Mississippi property I’ve ever heard of it.

Dylan:
It was rough, man. It was a good one to cut your teeth on, I guess. But, uh, I ended up closing that one for $33,500. And this was a triplex. Okay. And the total rent coming in at that time was a thousand dollars a month. That’s what each tenant was paying, like 300 and something. So I mean, it was a 3% deal, right? Like, I was sitting here the whole time, and even though the property was terrible, I was like, where, where, what am I missing here in the numbers? This and that, right? So I bought the property and yeah, it just started going downhill from there. Uh, even though they say tenants are paying this much money, I came to find out they weren’t paying anything. In fact, like the last tenant hadn’t paid in like five months. So I started right off the bat with an eviction and then a remodel, and then I just realized what kind of mess I bought myself into. So this was all going on. I was working a full-time job, and then I got fired from that job. So it was just a weird season. I kept working on the property. Um, I learned that I’m really not good at construction. Uh, but I, but I believed in the property and I kept, I kept going at it so little by little I fixed it up. I did a lot of them at work myself and just horrible dude. Just horrible.

Henry:
So I just wanna highlight a few things for people because I think your story is one that will resonate with either a lot of new investors who bought their first property and it didn’t go as planned. Or with people who are scared to jump in because this is what they’re scared of, right? They’re scared of buying something where the problems are so massive that they don’t know what to do. And you did, you bought something that had a lot of problem, like big problems, not little minor things, right? And then on top of that, you lost your job. So can you give us a little more specifics on like how much you had to put into this property to fix it up, and then how you went about getting that done after you lost your job? So,

Dylan:
To be honest, I really don’t know because I didn’t know how to calculate like a rehab budget back then. All I knew was that I had, I had like maybe five grand in the bank account saved up. So during that time, this was a summer, like I was doing part-time roofing work. So I was in south Mississippi on metal roofs and like, you know, it was a really low season of life and I just did what I had to do for part-time work. And I sold out my stocks. I, I may have had like two or three grand of stocks that I had accumulated through college. And, uh, so sold everything out and just kind of fixed it up little by little man. And luckily I was going to a local RIA meetup at the time, and I met one of my now partners, but he was kind of giving me guidance through some of this stuff on like how to do construction and the right ways to do this and that. But I was, it’s so silly, man. Like, looking back, if I would’ve known how to raise private capital or if I would’ve known how to hire contractors or leverage partnerships like that deal could have been 10 times better.

Henry:
Give us a little bit of the, like the, the financial impact. So you, you basically put a bunch of sweat equity into this and you had people kind of guide you through what you should or shouldn’t do. And then kind of talk to us about what that did to your numbers. So how did it end up for you financially? Yeah,

Dylan:
I, by the end of it, I had put in about 20 grand, I wanna say. So I was all in about $53,000 and I ended up selling that property for 70 k at the end of the year. I was just so emotionally done with that property, I was just ready to get rid of it. And so I, I mean, I made money, I made 13 or 14 grand, but probably learned a hundred thousand dollars worth of education. We have

Dave:
To take a quick break, but stay tuned. We have more from Dylan and his investor story right after this.

Henry:
Welcome back to the BiggerPockets podcast.

Dave:
Kudos to you, Dylan, because a lot of people would go through that experience buying a difficult property and losing your job and think that real estate wasn’t for them. So what inspired you to keep going and made you think that real estate actually is for you after this difficult first experience?

Dylan:
So, I mean, I made money on the deal. And so I’m a, I’m a type eight Enneagram, so like one of my fears is being out of control. And in that season of getting fired, I realized just how risky having one source of income is from a W2 salary. And like, I never wanted to be put in that position again. So I think it, it wasn’t the last job I ever had, but I think it just put a fire under me. Like, I’m never going to be dependent on a salary or, or an, or a job. Like I’m gonna be in control from now on.

Dave:
And so where’d you go from there? What happened after that first deal?

Dylan:
Yeah, so the following January or February, uh, I took a job. And again, like I, I didn’t know any construction and I, I knew at the time if I wanted to continue doing real estate, I needed to learn the construction side. So I don’t know if I planned it this way, but it worked out nice. I was playing a gig one night and this guy walked in and I kept hearing him talk about development and this and that. So I approached him and I was like, Hey, I want to, I wanna take a job with you. And, and so I was hired on as a, a commercial project manager. So I was managing like, job sites for banks for like smoothie kings little restaurants. And then we were doing custom homes. So I got to get a feel for what it’s like to manage construction. So I wasn’t the guy swinging the hammer, but I was the guy that was kinda lining subs up, which was really great education for the next three years.

Henry:
You know, I think that’s, um, I think that’s something that people talk about a lot, but maybe don’t really do or follow up on, but getting a job within the industry as you’re starting to learn is so extremely valuable because when I got started, I knew nothing about construction either. Like the way I learned it was I went and found somebody who was good at it and I just followed them around all the time. <laugh>, I was just, anywhere they went, if they went to houses, I went to go look at them too. So just so that I could learn. Um, and I think it’s a, it’s a great, uh, it’s a great way to, to force yourself to get experience without as much, well without any of the risk essentially of, of being an owner. Yeah,

Dave:
Henry, I, I, I totally agree with you. I think there’s, there’s so many different ways to get into real estate. You just have to think about what resources you have at your disposal. And certainly money is an important resource for buying deals, but time is an equally important resource and so are skills. And so if you can invest your time to learn skills like Dylan has done here, that’s an excellent way, especially early in your career, to establish a really strong foundation from, with, from where you can invest from.

Dylan:
I mean, I, I wasn’t making that much money, but in my opinion, I was learning a skillset that I needed to know and I needed a job anyway just to survive. So I was making like 40 grand a year, which isn’t a ton, but again, that education piece just leapfrog me forward. So,

Henry:
So Dylan, one thing I know about you is that you’ve cut your teeth investing in real estate in some would say smaller markets, some would say more affordable markets. Can you quickly tell us like which markets you’re mainly invested in?

Dylan:
Yeah, so today, right now I’m mainly investing in Mountain home, Arkansas and the GTR region of Mississippi, which is Starkville slash Columbus. So for those of you who don’t know, like mountain home, the, the city limit sign says I think like 13,000 people. You know, the county’s probably like 50. So I mean, it, it’s a small town and it’s the next nearest town that’s the same size as an hour away. So like, it’s, it’s kind of in the middle of nowhere too. It’s not like a suburb of a big town. It’s a, it’s a small town. And then same thing down there. Those, those city, those towns are, you know, 20,000 people. So I remember really questioning myself when I was getting started, like, am I putting myself in a pickle trying to buy in these super small towns? Like this is not an appreciation market.

Dylan:
This is very much a flat line cash flow market, and am I doing something bad and doing that? And I remember meeting some really wealthy people and they, they’re like, man, you can make as much money in a small town as you can in a big city. It’s, it’s all relative. So there’s pros and cons. I remember listening to BiggerPockets and hearing people talk about like vetting property managers. And at this time I had maybe a couple rentals and I was needing somebody to manage ’em. And they were saying like, yeah, I mean you, you just, you ask these questions to the property manager to see if they’re a good fit. Like do they have an online presence? Are they keeping good book bookkeeping? Things like that. Um, you know, how do they handle their operations? How big are they? This and that. And all the local property managers, there was only like two of them and neither one of them were online.

Dylan:
The only way you could find a listing was by calling their office or driving by and picking, picking up a flyer. So I remember listening to these episodes and being like, well, I don’t have any of that. So like, is this, like I said, is this, am I putting myself into pickle buying here? ’cause like there’s nobody to use for this. And um, same thing with like contractors, man, like some of these small towns, obviously we still have contractors, but you hear people talk about like, you wanna find a, a investor friendly contractor. I’m like, well, we got 20 GCs in this town and they’re all booked up eight months out from now. So like, what do I do? You know? So that’s, that’s one of those cons on a small town. But I also found, I was kind of the only guy in town sending out direct mail. I was the only guy kind of beating the streets, finding off market deals. So the competitive side of it was really low. So it seemed like I was like, I was buying properties at great discount, so something was working Right.

Henry:
Yeah, I, I mean I think that’s a great picture of like what it’s truly like to invest in a small town. ’cause I think a lot of people get, uh, enamored, especially beginners, like they just heard you bought a triplex for <laugh> for, you know, sub 30,000 or $40,000 like in, and I’m sure that can be appealing to some people, but it doesn’t come without its risks and its challenges. So of those cons of struggling to find contractors ’cause there aren’t enough and struggling to find property managers ’cause there’re only a couple. Um, how did you or are you overcoming those challenges in your business?

Dylan:
So I kind of decided that, and, and I think this maybe applies to larger cities too, but especially in the small town, like I want to get big enough that I can have those vendors, whether it be a contractor or a property manager, I wanna be big enough in my portfolio that I can have those positions in-house. So my goal is to get at least, you know, 50, 60 units in every market I’m in because at that mark I can start bringing these things in house and I can start controlling things. And you know, there’s kinda that, like that dead zone between like 10 and 50 units where it’s really difficult because you have enough units that is keeping you busy and you have enough projects that is keeping you busy, but you don’t have so many that you can start hiring positions to take care of that. So when you have five rental properties, that’s fine, you know, you can handle that. But when you got 25 rental properties, it’s really difficult until you kinda hit that mark where you can start hiring folks. My goal is to scale up as quick as I can to hit that mark.

Henry:
And so in that, in-between phase, you just kind of do what you can to keep the lights on. Maybe it’s working with somebody that isn’t the best until you can hire it yourself or manage it yourself.

Dylan:
Yeah, I mean that in between phase looks like bad operations if I’m being honest. Like, it, it looks like you’re learning a lot of make mistakes ’cause you’re just not efficient yet, right? You’re just trying to do everything at once. Like you’re, you’re the solopreneur. You, you are wearing all the different hats. It’s a really difficult phase, but it’s one everybody goes through, you know, everybody I’ve talked to that has a hundred, 200, 300 units, they talk about that phase. Like, you need to, you need to get this big as fast as you can.

Dave:
Well Dylan, how small of a town are we talking here? Because I, is it big enough that you can reach that level of scale with your, or with your strategy? ’cause you seem very ambitious and I’m curious if you’re gonna have to move to multiple markets to meet your goals.

Henry:
Have you bought all the houses in Mountain Home yet? Yeah,

Dave:
<laugh>, it’s a, it’s a company town now and it’s Dylan Osman’s Company <laugh>. So that

Dylan:
Is a concern, you know, at this phase in my investing, I’m trying to buy larger commercial assets, so apartments, you know, mobile home parks, things like that. And there’s only so many crappy old apartment complexes that I can go find and talk to in a town of 13, 14,000. So I know I will hit that limit, but I’m okay having operations within, you know, a 40 minute, maybe even 60 minute circle because at that level of scale, it’s not so crazy to send, you know, a maintenance guy to knock out two or three orders or send a property manager to go inspect the property once a week. You know, like I’m still, it’s still making sense on paper to me to have that in-house and keep it, and within an hour circle. I mean, I, there’s still plenty of deals to buy, like down in Mississippi, the town’s 20,000, but the, the county’s still 60,000. So I mean, you’re still, there’s still plenty of apartments to go find.

Dave:
That sounds great. And so just to, to give our audience some context here, how big is your portfolio now and have you gotten past that dead zone as you called it?

Dylan:
Yeah, total portfolio, I’m looking at about 124 units and now in, in full, full honesty, about half of that is in partnerships. So I don’t have a hundred percent equity of all that. Um, but that’s also spread across three different markets. So, well, in two of the markets I’ve hit that 50 unit mark where I’m able to hire people in that market. Um, so, you know, the, the, the first quarter of 2024 has been hiring people because I hit that mark just recently. So it’s been kind of a new phase of hiring people and being a boss and building out these operations and

Dave:
Awesome that, I mean that’s, that’s very impressive. I’m curious, I mean, just in four years, how did you go from failed deal to 120? You know, are you, are you flipping homes to get equity? Are you bringing in capital partners? How’d you scale so fast?

Dylan:
So 2021, early 2021, when I had the commercial construction job, I did the best thing I ever did. And that was invest in education and I’d just come outta college and it was almost weird for me to spend that amount of money to get education, but I did it and I’m so happy I did because it taught me how to find great deals. So what I’m really good at is finding really great deals. I’m really good at off market direct to seller marketing. I’m really good at finding stuff, 60, 65, 70 cents on the dollar. In the beginning I leveraged partnerships really hard. So because I was buying at such a discount, I could bring in a partner and, you know, I’ve got several partnerships today and each one kinda looks different, but those partnerships enabled me to scale quick even though I was like 22 or 23 without, you know, any income or any not much credit either. So, you know, those partners had great faith in me in the beginning and I’m glad they did. And then also along the way, I got a couple of private lenders on my books and they helped me scale tremendously too. So I was buying great deals, I was taking out lines of credits, I was using private investors, I was using partnerships, and I found great deals. I mean, it all started with

Henry:
That. So are you, are you saying your ability to find great deals is what helped you, uh, scale because it helped you like leverage your risk? Like how did finding the great deals really, really help you accelerate?

Dylan:
Well, when you’re buying deals at retail value, you can’t recycle your money, right? When you buy a deal at a hundred percent of what it’s worth, you’re typically gonna put 20, 25% down whatever it is, right? And you’re typically not gonna be able to get that money back out for a decent while until the appraisal will cover, you know, 80% loan to value, whatever it is. But when I buy great deals, I, I can, I can get creative, right? I can bring in a partner and I can say, look, this is a great deal on paper, I want you to bring the down payment. Um, maybe I want you to bring the expertise in this field, whatever it is. But this is a great deal on paper. Um, I’m gonna operate it, I’m gonna run the deal, I’ll manage the contractors. I found the deal, you know, write me a check, let’s go take this thing down.

Dylan:
And just an example of that, like I, the, the second deal I ever bought was a single family home. I found it for $32,000. It was renting for like six 50 at a time. So I mean, it was a 2% deal and I didn’t have any money and I could have, looking back now, I could have just taken it down solo, but I didn’t know better. But anyway, I bought it with a partnership and the partner brought the full purchase price. We instantly refinanced him out, and now me and him own a, a rental that’s 50 50 and we don’t have any money in it. We sold that rental a a year later for 65 grand. So, I mean, in his shoes, he’s doing great. He got his money back and made 15 grand for me. I made 15 grand. I didn’t have any money in it.

Henry:
So you bought a house for $32,000 and you found a lender who just probably pulled it out of his couch cushions and <laugh>. He bought a and you and you bought a house and everybody wins.

Dylan:
He was a partner in that scenario. So I mean, we had a full LLC and everything. He was a 50 50 partner back at that time. All I knew about was partnerships. That’s the only way I could structure a deal. Now there’s a lot more tools out there, like private investors, hard money lenders, um, you know, lines of credits that I have access to. So you start building your tool belt out and you can take down deals better.

Henry:
We’ve covered what Dylan has done in the past and how he’s built out his tool belt, but stick with us. Dylan is going to share what is working for him today after this quick break.

Dave:
Welcome back to the show. Well, I think it, that underscores something here, Dylan, that it is really important for people to understand is that a lot of folks struggle with figuring out how to finance their deals. And there are ways to find financing first, but what Dylan’s talking about is finding deals first and then going on to find financing. And that’s a really important distinction here because if you were to approach a private lender or to approach a partnership and say, Hey, do you wanna invest with me? And they’ll say, okay, maybe do you have a deal? And you say no, they’re gonna be like, okay, come back to me when you have actually something to show me. But if dealing is approaching potential partners, potential lenders with a killer deal, you’re gonna get a ton of attention for that kind of deal and people might even start competing to work with you. And I think that’s so important and why finding deals and being able to find these great deals is so important for scale because it, it just attracts so many people. I myself, as someone who invests in some lending funds and does some lending, like I don’t want to do the hard work of finding deals. I want to partner with people like Dylan who are gonna do that work for me. Yeah,

Dylan:
Absolutely. The number one skill you can have today is learning how to find great deals. What does a great deal look like and how do I find those deals? That’s the number one thing you can learn.

Dave:
Absolutely. Sounds like you’re doing it really well, Dylan. So tell us a little bit more about the deals that you’re doing today. What’s working for you in this environment? Yeah,

Dylan:
So I switched probably beginning of last year to really focusing on larger commercial stuff. So I was flipping homes, I had a good year of flipping homes last year. So my goal now is like anything single family, unless it has long-term hold value, I’m flipping it. And that the proceeds from that are going into me buying larger commercial assets. So the fun thing, I got really good at finding single family stuff and flipping that and finding rentals and then I switched to the commercial side. And what that looks like for me is just very relationship built. So I love calling owners who have a lot of doors, um, a lot of units, a lot of portfolio, and I just wanna take ’em out to lunch. I just wanna build a relationship, meet them, you know, that first phone call is not me trying to get a contract, it’s me just trying to build a relationship. So that’s what I focus on nowadays is building those relationships with these commercial sellers. And it’s worked well because out of the 124 units, give or take, you know, at least half of that has come in the last year. So the last year has just been a big

Henry:
Bump. You know, I love that you talk about this because this is a marketing strategy. It’s a marketing strategy that a lot of seasoned investors use. You know, I I I’ve I call it network marketing, right? It’s you finding deals or marketing through the network that you have or the network that you build. And you as a new investor, you can be super intentional about this and it’s a fairly affordable thing to do. It just costs you however much it costs you to skip trace somebody’s, you know, uh, phone number and then you make a call and, and you said it, you hit the nail right on the head. The call isn’t to buy a deal. The call is to say, Hey, I see that you own x, y, Z property and XY, Z market. I’m also an investor in this market. I’d love to just sit down and learn from you and understand how you’ve been able to do what you’ve done.

Henry:
And, uh, I think there’s a few things that are super beneficial for people. It’s a, a lot of these landlords are older, they’re retiring out, you know, you’ve got the silver tsunami happening right now, and so you’ve got older landlords looking to retire. There’s nothing I’ve, I’ve, I’ve just honestly found there’s nothing older landlords like more than to sit down with somebody who’s younger, who is getting into doing what they’re doing and just pour into them. And even if you don’t get a property from it, the amount of like knowledge and expertise that they will just willingly share with you over coffee. You, you take these guys to your local, you know, you, your local diner and put a cup of coffee in front of ’em and you might be there all day, uh, because they just want to help you. And so it’s a great way to learn. It’s a great way to buy deals. And I’ve also seen that even if you don’t end up getting a deal from that seller, they know all the other local landlords and know who is selling and connect you with all these other people and handyman and contractors, and sometimes they end up being your private money lenders. Like, it’s such a powerful way to find deals. It doesn’t cost any money. And I don’t think enough people do it

Dylan:
A hundred percent. Yeah. It like, it’s a free way. It’s, it’s one of those things that’s simple. It’s just not easy. Okay? It’s not fun to pick up the phone and call people you don’t know. But it’s the, the strategy is so simple. I mean, just go be nice to people, <laugh>, go talk to people, go tell ’em what you’re wanting to do. And uh, it’s, it’s worked well for me.

Henry:
So one of the things I think people are concerned about when they think about growing a larger portfolio or when they hear about other people growing a larger portfolio is they say, well that’s a lot of risk, right? Especially if you’re leveraging other people’s money to grow that portfolio. And there’s truth to that. It is risk. So how do you manage risk in your business plan and portfolio?

Dylan:
It’s changed as I’ve gone on. I didn’t realize the risk I was in the first two years of investing. ’cause I mean like my first two years of investing, I was keeping everything I found and I went broke buying great deals. Okay?

Dave:
Way after that first deal, you didn’t realize the risk that you had.

Dylan:
Yeah, I learned a lot of things on that risk was, uh, yeah. And I didn’t keep that one, right. So that was like almost more of a flip. But, you know, every deal after that I kept, I mean I kept so many deals and the first two years I was growing my equity, my balance sheet looked great, but I would have like four grand in the bank account with like 40 units. And like, that’s risky, dude. I mean, HVAC goes out and I’m like scrambling to find money, right? And is it almost seemed like I was using every deal I bought. I would buy a great deal, I’d pull out a line of credit, go buy another deal, and I just kept doing that and it’s fine, like it worked out. Um, but today I’m really focusing on building liquidity. So debt doesn’t bother me so long as I have high liquidity. So high debt, high liquidity is way better than no debt and low, low liquidity in my opinion, right? You know, if you have a hundred grand of debt, but you have a hundred grand in the bank account and the HVAC goes out, you don’t think twice about it. But when you have zero in debt and you have eight grand in the bank account, it puts yourself in a bad spot. And especially when you start having a hundred units, like you gotta think about D-Day scenarios ’cause it’s just gonna happen.

Dave:
I, I love this ’cause a lot of, especially newer investors don’t think about liquidity and, and how much, uh, money you have on hand. And for those listening, if you don’t know what it means, liquidity is just sort of this measurement of how accessible your money is. So cash is super highly liquid. A rental property is obviously less liquid because you would have to go through this sale, uh, a sale process to access that money. And so Dylan, I’d love to just get your input here and share your advice to our, our listeners here. How do you come up with the right amount of liquidity? Do you maintain some ratio of debt to liquidity or how do you think about the right amount of reserves for a portfolio of your size?

Dylan:
Well, for my size, I think it’s, uh, I saw a formula the other day and I don’t have it in front of me, but I mean, you’ll, you’ll know what feels right. I think, I think probably at least two or three months worth of expenses, you know, if I had to kind of spit ball something out there. Uh, but I probably more so in the beginning, like I said, I was keeping everything I found, which is fine. I wish I would’ve flipped a few more homes back then. I wish I would’ve just gotten a paycheck back then and not instantly like, you know, leverage out everything I found. So it’s not, even if your goal is to buy rentals, like stay on that goal. It’s a beautiful goal that, and at the end of the day, that’s what’s gonna make you wealthy. But don’t be afraid to flip now and then, like you’re gonna have payroll, you’re gonna have expenses. Don’t be afraid to flip. ’cause you need that marketing budget.

Henry:
Yeah, that’s, you know, a lot of landlords or a lot of real estate investors would tell you the opposite, right? They all say everything, but that’s not realistic when you have a business to operate. And, um, and I, you know, I just kind of want to hone in on something you said. You said you’ll, you’ll understand what feels right in terms of reserves and I and I being a landlord with a similar portfolio. Like I know what you’re saying there. It could ’cause what you’re saying there is once you start operating your portfolio, you start to get a sense of the rhythm of when things go wrong, what goes wrong when it goes wrong, what time of year, how much it typically costs you. And because you see your business every year, you’re able to kind of predict when I need money in my, like I can tell you right now, the months of the year where I’m cash poor and the months of the year where I have more cash in the bank, it is like the, the tide, like it, it’s the same every year.

Henry:
Um, but you don’t know that until you start operating. And so how I managed reserves until I got to a point where I understood the ebb and flow of money in my business was, uh, I would just use the BiggerPockets calculators where you could put all of your expenses. So you know, you budget, you know, 5% for vacancy and you know, 10% for CapEx and 5% for, for um, maintenance. And then I would go into my bank account and for every single property I’d calculate those percentages and I’d have a bank account, I’d move the operating money, uh, for those properties into an expenses, uh, account. Now they’re just two separate accounts, like they’re both in the same bank. But I always knew that every single month my expenses would get moved from my operating to a maintenance account. And then I would start to see throughout the year, well, am I actually using everything in here? And so then at the end of the year, I could move some money back over into my operating account, but I always knew I had this account with my maintenance, uh, with my maintenance money set aside. And it just gave me a peace of mind. Like I said, it was just two separate accounts. It could have all went into one account, but having it actually be moved into the other gave me a sense for like, what am I actually spending on expenses and help me be able to budget that better in the future.

Dave:
So wait, not everyone creates really detailed cashflow forecasts and does like really nerdy spreadsheets to figure out what <laugh> is that just me? That’s just me. Okay.

Dylan:
I should have, so like now in this phase of my business, I’m thinking more about operations and bookkeeping and like, what did the financials look like? But in the beginning I was just a deal finding maniac. That’s all I cared about. And, and the truth is, guys, like while you’re scaling, you’re gonna be cash poor. Like you’re, you’re gonna hit cash crunches. Um, so you, you either need to, you either need to learn how to raise money via private investors, or you need to learn how to have partnerships to help your liquidity out.

Dave:
That’s such a good point though. You’re not gonna be good at everything when you first start. You know, like I, I think bookkeeping finance is a common one that people don’t develop until a few years into their portfolio. And I do appreciate your honesty, Dylan. Like if you’re scaling at the pace that you have or Henry has, like there is sacrifice there and there is risk there. Um, obviously you de-risk it by having great deals and doing all this stuff you talked about, but being cash poor and, you know, scaling quickly does come with some, uh, some risks. So I appreciate you being, uh, candid. This has been an amazing conversation, Dylan. I really, uh, love hearing about your story. Before we get outta here, can you just walk us through, uh, an example of a deal that you have done recently that you think would be educational for our audience?

Dylan:
Assuming most people are getting their first deal, you really need to adopt a mindset that this is a people business. Okay. You know, I I, I didn’t touch on this in the small town thing, but my brand is really important here, right? If I ever screw somebody over that can fly over the town very fast. So it’s a people business, you have to treat people right? You have to do what you say you’re gonna do. And I actually think that helps you out, especially when you’re doing direct to seller. So if I’m walking into a house, I’m telling them I’m making money on your house. Uh, I’m telling them what my numbers look like and I’m telling them that you know what their best option is, even if that’s not me buying it. So it’s a people business, treat people first. You need to walk into every house on how you can help that person out, not yourself.

Dylan:
So the deal I have is, is simple flip deal and I’m about to list it, or actually I got listed yesterday, but we bought it early November of 23 for a hundred grand. And the seller was, she had a couple concerns. She had a lot of stuff in the house. The house needed a lot of work, and she was really worried about where she was gonna live. She was tired of yard maintenance, she was tired of such a large house. Like those were her reasons why. Okay? So she had equity in the house. Um, I offered her a hundred grand, the house had a ton of stuff in it and there was a lot of things I couldn’t see. There was a lot of risk there. It just, it was one of those old homes that was kind of never ending on how much work it needed.

Dylan:
So I offered her a hundred grand and that she could live in one of my rentals for half off rent for I think three years. Okay. So, and that I was buying it as is and I was taking care of everything in the house. And I, I do that on every house, but I tell, I told her like, take what you want, leave what you don’t. Okay. So that takes the fear of her having to clean up the house and anything like that. Plus after closing, she had two months to move her stuff out. So bought it for a hundred grand. I, my original intention was to whole tail it, just clean it up and relist it. But we started rehabbing it and kind of kept going and the line cut kinda kept getting pushed forward. So it’s more of a flip now. We’ve put 15 grand into it. We have about five to six grand of holding costs. I used a private investor to take down the deal and we listed it yesterday for two 15. So pretty good flip margins, uh, should net about 70 to 80 grand hopefully. And I love the deal, man. I mean, it’s, it is just a, a textbook deal on how you help people out.

Henry:
Absolutely. This is a textbook that’s a solid double or triple in terms of, in terms of a flip. And in a small town market. I think one of the other things people don’t realize is that you can make, you know, 50 to a hundred grand on single family flips in smaller markets. But what you talked about there is exactly why I love single family and small multifamily real estate. It’s just easier to have a positive impact on the people who you’re doing the deal with. It’s, you know, I’ve done a very similar things where I’ve got a tenant right now in one of my units who has discounted rent and he’s been there for almost two years now. And he was very, very, you know, it was a very difficult situation for him and me helping him with a place to live. Like it, his financial situation was gonna put him in a position where we have to fill out a ton of applications and get told no a whole lot before he moved. And so I was able to remove that barrier for him. And it’s just not something you get to do in larger multifamily real estate. And so thank you for sharing that and thank you for, um, being so honest and vulnerable with us about some of the problems and challenges you faced. And, uh, it’s great to see the success that you’re having and how good of an operator you have turned into. Thank you. Thank you.

Dave:
Thank you. Thank you, Dylan. Thanks again for joining us. We appreciate it. Of course, guys,

Dylan:
Thank you guys for having

Dave:
Me. Thanks again to Dylan Osmon for joining us today. That was an excellent conversation. Learned a lot and really impressed by Dylan’s story. If you wanna connect with him, as always, we’ll put his contact information in the show notes below Henry man, always good seeing you. Thanks a lot for being here. And thank you all for listening. We’ll see you next time.