October 7, 2025 • 27 mins
Max Emory was crushing it with the BRRRR strategy on duplexes. His system was working, steady cash flow, solid equity gains, and growing confidence as an investor. But like many of us, Max wanted to scale up.
He heard that buying bigger properties would accelerate his success — until it didn’t.
When Max bought a 6-unit and a 3-unit, things started to fall apart. The deals didn’t perform the way he expected, and he ended up losing a lot of money, even having to sell his successful duplexes to cover the losses.
On this episode, Max shares what went right with his duplexes, what went wrong when he tried to go bigger, and the lessons he learned the hard way.
If you’ve ever thought about scaling up your portfolio, you’ll want to hear this story first.
https://rentalincomepodcast.com/episode542
Thanks To Our Sponsors:
MidSouth HomeBuyers – Turnkey Rentals In Memphis & Little Rock. Instant Cash Flow On Day One. (Priced between $100,000 to low $200's)
Ridge Lending Group - Making investment Mortgage process simple and stress-free.
Rental Accounting Software Made Easy. Free 30 Day Trial
He heard that buying bigger properties would accelerate his success — until it didn’t.
When Max bought a 6-unit and a 3-unit, things started to fall apart. The deals didn’t perform the way he expected, and he ended up losing a lot of money, even having to sell his successful duplexes to cover the losses.
On this episode, Max shares what went right with his duplexes, what went wrong when he tried to go bigger, and the lessons he learned the hard way.
If you’ve ever thought about scaling up your portfolio, you’ll want to hear this story first.
https://rentalincomepodcast.com/episode542
Thanks To Our Sponsors:
MidSouth HomeBuyers – Turnkey Rentals In Memphis & Little Rock. Instant Cash Flow On Day One. (Priced between $100,000 to low $200's)
Ridge Lending Group - Making investment Mortgage process simple and stress-free.
Rental Accounting Software Made Easy. Free 30 Day Trial
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Inspiring interviews with Today is Top Landlords, this is the
Rental Income Podcast, and now damnly.
Speaker 2 (00:09):
Max, I want to figure out what went wrong. So
you were buying duplexes, you were fixing them up, renting
them out, you were making money. Everything was going great.
But then you decided to go bigger. You bought some
bigger properties and ended up losing those duplexes.
Speaker 1 (00:28):
What happened? You know, we decided we wanted to get
out of our comfort zone. We were doing the bur
strategy with the duplexes. It was working like a charm.
But we decided to purchase a six unit and a
triplex kind of to add to the portfolio and try
to run the same strategy with And yeah, lots of
things went wrong with those two properties, primarily the six
(00:50):
unit and so so yeah, that's that's kind of like
high level my experience in the real estate besting space.
Speaker 2 (00:59):
Today on the PO, we're going to see if we
can figure out what went wrong. Did Max make some
mistakes or is this just a case of bad luck.
I also want to figure out how making some mistakes
on a six unit and a three unit can lead
to you losing so much money that you have to
sell off a bunch of duplexes. Joining us on the
(01:20):
podcast today is Max Emory, who invests in South Carolina.
Will take a quick break to thank our sponsors. We'll
come right back and we'll talk to Max. Are you
thinking about investing in rental properties but maybe you don't
know where to start. My friends at mid South home
Buyers make it simple. For over twenty three years, they've
(01:41):
been selling fully renovated, turnkey rental properties in Memphis and
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(02:02):
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(02:23):
If you want to talk to someone that's been through
the process, feel free to reach out to me. I'm
happy to answer any questions or if you're ready to
get started, just go to midsouthhome Buyers dot com. That's
midsouthhome Buyers dot com. It's a lot of work to
find a really good rental property, and when you actually
find that property, you want to make sure you're working
with a lender that can get that loan closed. The
(02:45):
lender that I recommend is jay Ley Ridge from Ridge
Lending Group. She's a nationwide lender and her specialty is
helping investors finance rental properties. She has a ton of
loan programs and she can find something customized to you
for your situation. If you want to find out more
or you're ready to get started today, just go to
Ridge Lendinggroup dot com. That's our Idge Lendinggroup dot com.
(03:11):
N MLS four two zero five six max. When you
started buying rental properties, you were living in California but
investing in South Carolina. How did that happen?
Speaker 1 (03:22):
Sure? Yeah, yeah, So I'm originally from South Carolina and
I went to college in South Carolina. I went to
the University of South Carolina, the game Cocks, and so
I really just started with places I knew. I actually
started with the Myrtle Beach area. We had gone there
growing up, and I knew there was lots of vacation
(03:42):
rentals and that sort of thing there. And my brother
actually still lives in that area now, he's been there
for the last decade and so so I started there
kind of just on the vacation rental track. And this
was back in like, you know, early twenty nineteen, just
thinking about kind of where I have a competitive advantage.
(04:04):
Since I went to school in Columbia, South Carolina, you know,
I knew some of the neighborhoods, and you know, college
students are always in and out and need places to
stay in that sort of thing. And so I started
looking around there and it's a very small, multifamily like rich,
like dense area. There's there's just a lot of those everywhere,
(04:26):
and so so yeah, I still knew some people there,
and so I had some people I could rely on
if I needed them to like drive a neighborhood or
something like that. So so yeah, I really just looked
at kind of where I had a competitive advantage, where
I was familiar, where I could quickly call somebody to
help me out if if needed with something, you know,
doing it at a distance, and then it ultimately came
(04:48):
down to the numbers, so running numbers on different properties.
And you know, back then, especially with the Burr strategy,
it I mean it really worked like a charm in
that area. So then I kind of I kind of
got hooked into that market.
Speaker 2 (05:00):
And then as far as the Burd strategy, were you
looking for full gut rehabs or were you finding properties
that just need a little bit of touch up?
Speaker 1 (05:12):
We were primary primarily targeting properties that were built like
nineteen eighty or newer, so not super duper old properties,
and we really just wanted we just wanted the classic
like cosmetic updates, you know, like that's that's what we
were targeting. A few of them we got in, you know,
heavier than that, but but yeah, if we could just
(05:35):
kind of give it a cosmetic facelift, like all the
all the bones of the property are good, so structurally
it's good. If it wasn't, that was a red flag
for us, and we we wouldn't go forward with the deal.
You know, plumbing, electrical, all the major kind of systems
of the property had to be in you know, pretty
good condition to where we weren't going to have to
(05:56):
replace any of that stuff. Anytime soon. So yeah, just
cosmetic updates is primarily what we were going after.
Speaker 2 (06:03):
And were the properties like by the school, like were
you renting to students?
Speaker 1 (06:08):
Actually no, like that that was that was my original
fault was like, oh, this is easy peasy, you know,
like there's a ton of students in and out. They
need a place to stay. A lot of them prefer
houses over you know, apartments. So but no, we actually
got into a neighborhood in like Northwest Columbia or sorry,
north East Columbia I think, And and it's just I
(06:34):
would probably describe it as a C plus neighborhood, not
college students, just like good you know, good working class
adults in that neighborhood who you know, we're working towards
being able to afford a home, but just not quite
there yet. So so they're they're renting homes.
Speaker 2 (06:55):
So let's let's talk some general numbers, like what were
you paying for the properties and how much were you
spending to fix them up?
Speaker 1 (07:04):
Yeah, so each duplex went and all these duplexes were
in the same neighborhood, which was amazing. We could take
advantage of economies of scale, but and we could also
produce our own comps with that strategy. But each duplex
was somewhere between ninety thousand and like one hundred and
ten one hundred and fifteen thousand, somewhere in that range,
(07:26):
depending on kind of their condition, how how rough the
tenants had been on them basically, and because all of
them were kind of on the same level renovations wise,
and you know when the last time things were updated
that sort of thing. So, yeah, between ninety and one
ten per duplex, and we and this was in twenty
(07:48):
nineteen twenty one, and so we could fix each of
them up, so both units, we could do some stuff
to the outside so you know, full cosmetic left on
the inside, and then we still had a little bit
of budget to do things on the outside as well.
For thirty to thirty five k per duplex.
Speaker 2 (08:10):
Okay, and then you would fix them up, fix them up,
do your REFI, get your cash out, and then do
it again.
Speaker 1 (08:18):
Correct. Yeah, And we actually didn't wait to fully complete
each each burr that we were kind of working everything
in conjunction, and so if we had a cash gap,
we would just go to our network of family and
friends and we would raise money from them to continue purchasing,
you know, whenever that opportunity presented itself.
Speaker 2 (08:40):
And how many burrs did you do?
Speaker 1 (08:44):
Yeah, and in that neighborhood we did, I believe it.
We did six six in a pretty tight time trame
probably within a year.
Speaker 2 (08:55):
And so, and everything was going good. You had a
good contractor you had a good property manager, like it
just seemed like you had a good system going on.
Speaker 1 (09:05):
Yes, yeah, we had a we we had figured this
strategy out, like it was. It was pretty locked in.
We had our key players and everyone knew their parts.
It was very easy to manage at a distance. And yeah,
properties cash flowed, properties had some equity in them. So yeah,
it was it was a pretty almost like a turnkey strategy.
(09:27):
But we were you know, we were the ones turning
the keys.
Speaker 2 (09:30):
So then how did how what what happened when things
went bad? So you bought a six unit and a
three unit and it seems like that's when things kind
of fell apart.
Speaker 1 (09:43):
Yeah, actually, yeah, you know, we we were both my
my partner and I were just very growth oriented and
and and still are today. But you know, we kept
thinking and honestly we kept hearing you know, on podcasts
and YouTube videos and stuff that, like, you know, this
(10:06):
thing about getting out of your comfort zone and you know,
starting to do bigger deals that can change your life
quicker and and that you know that idea, And so
we said, okay, let let's start looking a little a
little bigger. Let's start to dip our toes into the
commercial space so you know, five plus units and start
(10:27):
figuring out how, you know, how people structure those deals,
and how the underwriting is for those deals, and how
the you know, the financing, just all of it. And so,
you know, we we got a six unit, we actually
got it off market. We got the triplex off market
as well. Both of them needed you know, full scale,
(10:49):
full scale renovations cosmetically. But you know, we were we
were under the impression structurally they were good and kind
of the systems within the properties were good. That turned
out not to be the case, which is which kind
of led us down, ah, you know, money pit type
of path. But but yeah, so essentially to answer your question, yeah,
(11:10):
we we wanted to get out of our comfort zone,
and so we started tackling these larger properties.
Speaker 2 (11:15):
So what happened, like what was different with with those
properties than the duplexes.
Speaker 1 (11:21):
Yeah, you know, Uh, it's it's one hundred percent on
us to do our you know, proper due diligence and
to hire the right people and and that sort of thing.
But specifically with the six units, Uh, there was just
a lot that there there was a lot that was
wrong with it that the home inspection didn't necessarily highlight
(11:45):
or or even have in the home inspection, and so
there was some pretty major structural things that were wrong
with it. I think the electrical issues were pointed out, uh,
and and we we had we had that in the
budget accounted for because we knew the deal with that,
we had to basically fully redo the electrical system for
(12:07):
the entire building. But there was some structural things that
were wrong with it that we weren't aware of until
after we closed and we were you know in renovations
and things, and so obviously you know, structure structural issues
with kind of this like large ish you know building
that has six units in it, like six true apartment units,
(12:30):
you know, that was that was something we had not
accounted for, and that was something that was very expensive,
if I remember correctly, it was I think it increased
ourt budget by like eighty something thousand or something like that,
which is yeah, major, Yeah, it turned into a major major,
like full got rehab for this six unit building very quickly,
and there were a lot of plumbing issues and things
that we encountered as well. But yeah, that was kind
(12:54):
of the beginning of it. We just we missed some major,
major things on the due diligence side, and you know
that a and then COVID was happening at this time too,
write so that was kind of an extra layer and
so and so we it was kind of the perfect
storm to you know, Okay, now the renovations budget is
(13:14):
double what we thought it was going to be, and
it was already big to start with, and and now
the timeline has you know, more than tripled because uh,
you know, because we're dealing with some of this COVID
stuff and now we're kind of limited on getting permits
for things. And it was really a perfect storm.
Speaker 2 (13:32):
So like, looking back on it, was there anything that
you could have done differently or maybe something you missed
to pick up on the structural stuff, I.
Speaker 1 (13:44):
Think I think maybe getting in some sort of structural
specialists would be good if a property is over a
certain age, because something I failed to mention is I
mean this this property, this property was outside of our buybox, right,
Like we wanted to buy in nineteen eighty or newer,
(14:05):
and this property was like one hundred years old. So yeah,
so I think, you know, with a property like that,
I think getting a specialist for each portion of the
property that needs to be like thoroughly inspected, I think
that would probably be worth the money.
Speaker 2 (14:23):
So why did you Why did you change that? Because
it seemed like you had a great thing going with
the duplex, is that they didn't need a lot of
rehab It seems like you were renting them pretty quickly.
Everything was going good, like you had a really good
thing going. Why did you change change your strategy? Why
(14:43):
did you go outside of your buybox?
Speaker 1 (14:47):
Yeah, I think I think we just really wanted to
get into a commercial deal, you know, like commercial you know,
being a small commercial deal, being six year units. But
we really just wanted to start to get into the
larger property space and kind of work our way up.
(15:09):
And you know, my partner and I both working full
time jobs at the time, also had other side businesses
and just doing way too much like cold we couldn't
give this the attention it deserved, and so I think
making decisions that weren't fully informed, and we're just like, well,
we really want to close on this deal so that
(15:30):
we can you know, now we can say we're in
the commercial space and we're working our way up into
larger and larger properties. So we're you know, we're willing,
for some reason to kind of you know, fudge on
our spreadsheet and our buybox to make this thing work,
and you know, maybe making some assumptions that just aren't
(15:51):
you know, are too optimistic. That makes sense.
Speaker 2 (15:55):
So it's like you got excited about this deal and
you wanted to make it work, but you just overlooked,
overlooked the wrong things to get it going. So then
did you ever get the property rented out before you
guys walked away from it?
Speaker 1 (16:13):
We did, Yeah, we did. Yeah. The the renovations just
kind of drug on and and so, you know, no
one wants to live in a construction zone, right, so
as soon as we have one unit live and we
did some major things to these units and they ended
up looking you know, nice and being being of good
quality and a good place to live, but they were
(16:37):
just hard to rent because we were still doing construction
on the other units, you know, so we we did
successfully get some tenants in there, and uh, you know,
if the full building would have been done on schedule,
I think we would have been able to keep it.
I think we could have figured out how to keep
it and it would have cash flowed. But but yeah,
(16:59):
just drug out so long and and I want to
say maybe half the building was was rented by the
time we were able to sell it. And you know,
like I said, this was during COVID, so people were
kind of you know, pulling back from purchasing these types
of assets just because no one knew what was going
(17:20):
to happen. You know. So maybe if we could have
held it through COVID, then on the on the backside
of COVID, after everything had you know, basically doubled across
the country, maybe we could have made out better on it.
But but yeah, we Uh, something I haven't mentioned either
is we had a hard money loan on it. That
was that was just a part of our process. Hard
(17:41):
money loan get into the property quickly, you know, be
easy to work with on the acquisition side, and then
if we need to raise money for innovations, we raise money.
And you know, we always know, we can pay everything
back just using that very efficient Burr strategy. But in
this case, you know, we went way long on the
(18:02):
hard money lawn and so we were racking up extension fees,
and our general contractor, who we had a relationship with
for a good relationship for over two years, we ended
up falling out with them, which caused us to fall
out with the property management company who we were working
with for over two years, who who you know, works
(18:23):
closely with this general contractor, and ended up getting into
a mild lawsuit there. So that's just something else that
happened with this with this six unit. But we ended up,
you know, able to get out from under everything, but
but it took a while and it took a lot
of cash. So we we ended up having to sell
(18:43):
you know, these awesome duplexes that you know, that were
cash flowing and that had some good equity in them
and that were amazing assets, uh, just to cover our
losses on the other side of the portfolio.
Speaker 2 (18:56):
So to keep everything moving with with paying the hard
money loan, because you I assume you weren't bringing in
enough rent to cover the hard money loan.
Speaker 1 (19:05):
Yeah, not even close.
Speaker 2 (19:07):
Okay, So so you're losing money on that, and then
you had to come up with the extra rehab money
with the foundation problems. So how were you funding that?
Like were you raising money or were you dipping into
your savings or how did you cover that on a
monthly basis? Oh?
Speaker 1 (19:25):
Yeah, all of the above. Yeah, we we raised We
went back to our existing capital partners and you know,
raised more money from them. Obviously we were one hundred
percent transparent about everything, but these are you know, close
friends of ours, so they understood, and they knew, they
(19:46):
knew no matter what, they were going to get their
money back with interest, because that's just that's just how
we operate, that's just our character. And so and we
ended up acquiring i think one more private money lender
to cover some things on this deal so that we
could just get it sold. But yeah, we were dumping
our personal uh savings into it. Like I right around
(20:07):
this time, you know, I had started uh started my
bookkeeping firm that served to the state investors, which is
which is how we met. And I was basically the
money that that was making. I was basically just you know,
shoveling it over here to the sixth unit to try
to save us. And you know, I took out a
(20:29):
home equity line of credit on a duplex that I
was house hacking in Utah at the time, and you know,
I used that heat lock to pour more money into
it just so we could you know, keep it going
and eventually sell it. But yeah, in the end, what
really saved us was our portfolio of duplexes that had
some some good equity in them. So we it hurt.
(20:52):
It hurt a lot to sell those. I wish I
still own those today, but but that's really what ended
up saving us.
Speaker 2 (20:58):
So you had to sell the dow flexes to raise
money to pay back your investors, pay back your keylock,
and basically those properties saved you.
Speaker 1 (21:09):
Exactly, yeah, exactly. Yeah. Yeah, we were one hundred percent
committed to paying back all of our all of our lenders,
all of our investors, you know, with the interests that
they're owed, no matter what the contract says, right like,
we're gonna we're going to get them what what they're
owed as as how we see it. And so yeah, yeah,
(21:30):
we were able to cover everything by selling those and
that's such a shame.
Speaker 2 (21:34):
I mean, you had those those duplexes that sounded like
they were great properties. It just it's a shame that
you had to lose them to dig yourself out of
this hole on the sixth unit like that, that's got
to drive you crazy.
Speaker 1 (21:50):
It hurt, It hurt. Yeah, I always tell people if
if we you know, whenever we made the decision to
purchase the sixth unit and the Tripolate we lost some
money on the Tripex as well, But whenever we made
the decision to purchase those, we we were at a
true crossroads. We we had another we had a we
had another packaged duplex portfolio that we were considering again
(22:13):
in this same neighborhood that we already knew. But we
chose to to go the other route because we didn't
want to get stuck in this one strategy, you know,
we wanted to start to expand, and so we said
no to the to the deal where we knew we
could make money and be successful, to try the new thing,
which I think is just a it's just a rookie mistake,
(22:35):
you know that that's a mistake that a lot of
people make that are that are new to it. And yeah,
I tell you all the time, if we would have
just kept doing the strategy that the boring thing that
was actually making money. Like you know, we would we
would both be in a just different financial, you know
position today. Yeah, I mean it's just so crazy.
Speaker 2 (22:58):
I mean, it's it all almost makes me think that
it's maybe not better to go big. That if you
find something that works, just keep doing it, even if
it's not as exciting as as a bigger property, Just
keep doing the small, boring deals.
Speaker 1 (23:16):
Yeah. And and I don't for me, it's not necessarily
about you know, just do small deals and be good
with that and make money with that. It's it's really
just if I think it's just focusing. You know, like
we we tend to see the new shiny object and
it's like, oh, let's go over here, let's go over there,
(23:36):
let's try this, let's try that. But you know, because
staying focused and committed to it to one thing. For
someone who is of like an entrepreneurial personality, it's just tough.
It can kind of become boring and monotonous. But but yeah,
I urge people like, if if you have a strategy
that you have dialed in, you have systems and processes
(23:58):
and people built around on that strategy, and the strategy
is actually making money, Like just do more of that,
like ten x that. Don't don't go do something new
that you're going to have to go figure out just
because you're bored or because you heard something on a podcast,
like do the thing that makes money and that you
can actually because you know that that was a very
(24:21):
scalable model for us. We were tied to that one neighborhood.
But our model was extremely scalable, you know, at least
for the next few years, and it was making money.
So so yeah, I I try to harbor on the
past and like I'm so happy like all the lessons learned,
Like I have documented lessons learned out of that whole thing, right,
(24:43):
and and those lessons learned have allowed me to do
the things that I'm doing today in a much better way.
But but yeah, it it hurts.
Speaker 2 (24:53):
It hurts so as far as like what someone can
learn from your experience. So it's it seems like, make
sure that you do your due diligence, make sure you
get a good inspection and understand what you're walking into.
And then it seems like the aide of the property
was also an issue. Maybe maybe stick stick to newer properties.
(25:17):
Is that something you would do.
Speaker 1 (25:20):
I mean, I, you know, through our bookkeeping firm, like
we serve a ton of investors, all different markets, different strategies,
different asset types, you know, old properties, new properties, Like
I don't. I don't think it's about staying you know,
with newer properties. I think it's just like on once
you have a dialed in bybox that works, I think
(25:42):
it's just sticking with that buybox until something breaks and
then it's like, okay, we need to you know something
we tell our clients in the bookkeeping firm, like our
big thing is decision ready financials, and so we want
to be able to look at the financial data and
actually make decisions from that, like acquisitions, you know, decisions
(26:02):
let's tighten up the buybox or let's alter it because
these types of dells are the most profitable for you
right now, like things like that, and so I I
think it's more so about you know, just staying disciplined
to where it's like, no, this is my bybox, this
is what I'm looking for, and I'm gonna I'm going
(26:23):
to stay within this bybox because like there's a reason
I created this bybox, you know, like it's based on
experience or maybe even someone else's experience.
Speaker 2 (26:33):
That makes sense. Well, if anybody wants to connect with Max,
or if you're looking for bookkeeping for your real estate business.
As Max mentioned, he owns a company that does bookkeeping
for investors, and I've got a link to his website
on my website. You can find it at Rental Income
Podcast dot com slash episode five forty two. I'd like
(26:55):
to thank Chailey Ridge from Ridge Lending Group for sponsoring
today's episodeisode. If you're looking to buy a rental property,
whether you're just getting started or you want to add
to your portfolio, reach out to Chailey. She's a nationwide lender.
She has a ton of different loan programs and she
can find something that works for you. If you want
(27:16):
to connect with her, just go to Ridgelendinggroup dot com
n MLS four two zero five six. Thank you so
much for checking out the podcast today. Make sure you
hit that follow button. I put out a new interview
every single Tuesday, and if you're following the show, you'll
get notified when the next episode comes out. My name
(27:39):
is Dan Lane and this has been the Rental Income
Podcast
Inspiring interviews with Today is Top Landlords, this is the
Rental Income Podcast, and now damnly.
Speaker 2 (00:09):
Max, I want to figure out what went wrong. So
you were buying duplexes, you were fixing them up, renting
them out, you were making money. Everything was going great.
But then you decided to go bigger. You bought some
bigger properties and ended up losing those duplexes.
Speaker 1 (00:28):
What happened? You know, we decided we wanted to get
out of our comfort zone. We were doing the bur
strategy with the duplexes. It was working like a charm.
But we decided to purchase a six unit and a
triplex kind of to add to the portfolio and try
to run the same strategy with And yeah, lots of
things went wrong with those two properties, primarily the six
(00:50):
unit and so so yeah, that's that's kind of like
high level my experience in the real estate besting space.
Speaker 2 (00:59):
Today on the PO, we're going to see if we
can figure out what went wrong. Did Max make some
mistakes or is this just a case of bad luck.
I also want to figure out how making some mistakes
on a six unit and a three unit can lead
to you losing so much money that you have to
sell off a bunch of duplexes. Joining us on the
(01:20):
podcast today is Max Emory, who invests in South Carolina.
Will take a quick break to thank our sponsors. We'll
come right back and we'll talk to Max. Are you
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If you want to talk to someone that's been through
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(03:11):
N MLS four two zero five six max. When you
started buying rental properties, you were living in California but
investing in South Carolina. How did that happen?
Speaker 1 (03:22):
Sure? Yeah, yeah, So I'm originally from South Carolina and
I went to college in South Carolina. I went to
the University of South Carolina, the game Cocks, and so
I really just started with places I knew. I actually
started with the Myrtle Beach area. We had gone there
growing up, and I knew there was lots of vacation
(03:42):
rentals and that sort of thing there. And my brother
actually still lives in that area now, he's been there
for the last decade and so so I started there
kind of just on the vacation rental track. And this
was back in like, you know, early twenty nineteen, just
thinking about kind of where I have a competitive advantage.
(04:04):
Since I went to school in Columbia, South Carolina, you know,
I knew some of the neighborhoods, and you know, college
students are always in and out and need places to
stay in that sort of thing. And so I started
looking around there and it's a very small, multifamily like rich,
like dense area. There's there's just a lot of those everywhere,
(04:26):
and so so yeah, I still knew some people there,
and so I had some people I could rely on
if I needed them to like drive a neighborhood or
something like that. So so yeah, I really just looked
at kind of where I had a competitive advantage, where
I was familiar, where I could quickly call somebody to
help me out if if needed with something, you know,
doing it at a distance, and then it ultimately came
(04:48):
down to the numbers, so running numbers on different properties.
And you know, back then, especially with the Burr strategy,
it I mean it really worked like a charm in
that area. So then I kind of I kind of
got hooked into that market.
Speaker 2 (05:00):
And then as far as the Burd strategy, were you
looking for full gut rehabs or were you finding properties
that just need a little bit of touch up?
Speaker 1 (05:12):
We were primary primarily targeting properties that were built like
nineteen eighty or newer, so not super duper old properties,
and we really just wanted we just wanted the classic
like cosmetic updates, you know, like that's that's what we
were targeting. A few of them we got in, you know,
heavier than that, but but yeah, if we could just
(05:35):
kind of give it a cosmetic facelift, like all the
all the bones of the property are good, so structurally
it's good. If it wasn't, that was a red flag
for us, and we we wouldn't go forward with the deal.
You know, plumbing, electrical, all the major kind of systems
of the property had to be in you know, pretty
good condition to where we weren't going to have to
(05:56):
replace any of that stuff. Anytime soon. So yeah, just
cosmetic updates is primarily what we were going after.
Speaker 2 (06:03):
And were the properties like by the school, like were
you renting to students?
Speaker 1 (06:08):
Actually no, like that that was that was my original
fault was like, oh, this is easy peasy, you know,
like there's a ton of students in and out. They
need a place to stay. A lot of them prefer
houses over you know, apartments. So but no, we actually
got into a neighborhood in like Northwest Columbia or sorry,
north East Columbia I think, And and it's just I
(06:34):
would probably describe it as a C plus neighborhood, not
college students, just like good you know, good working class
adults in that neighborhood who you know, we're working towards
being able to afford a home, but just not quite
there yet. So so they're they're renting homes.
Speaker 2 (06:55):
So let's let's talk some general numbers, like what were
you paying for the properties and how much were you
spending to fix them up?
Speaker 1 (07:04):
Yeah, so each duplex went and all these duplexes were
in the same neighborhood, which was amazing. We could take
advantage of economies of scale, but and we could also
produce our own comps with that strategy. But each duplex
was somewhere between ninety thousand and like one hundred and
ten one hundred and fifteen thousand, somewhere in that range,
(07:26):
depending on kind of their condition, how how rough the
tenants had been on them basically, and because all of
them were kind of on the same level renovations wise,
and you know when the last time things were updated
that sort of thing. So, yeah, between ninety and one
ten per duplex, and we and this was in twenty
(07:48):
nineteen twenty one, and so we could fix each of
them up, so both units, we could do some stuff
to the outside so you know, full cosmetic left on
the inside, and then we still had a little bit
of budget to do things on the outside as well.
For thirty to thirty five k per duplex.
Speaker 2 (08:10):
Okay, and then you would fix them up, fix them up,
do your REFI, get your cash out, and then do
it again.
Speaker 1 (08:18):
Correct. Yeah, And we actually didn't wait to fully complete
each each burr that we were kind of working everything
in conjunction, and so if we had a cash gap,
we would just go to our network of family and
friends and we would raise money from them to continue purchasing,
you know, whenever that opportunity presented itself.
Speaker 2 (08:40):
And how many burrs did you do?
Speaker 1 (08:44):
Yeah, and in that neighborhood we did, I believe it.
We did six six in a pretty tight time trame
probably within a year.
Speaker 2 (08:55):
And so, and everything was going good. You had a
good contractor you had a good property manager, like it
just seemed like you had a good system going on.
Speaker 1 (09:05):
Yes, yeah, we had a we we had figured this
strategy out, like it was. It was pretty locked in.
We had our key players and everyone knew their parts.
It was very easy to manage at a distance. And yeah,
properties cash flowed, properties had some equity in them. So yeah,
it was it was a pretty almost like a turnkey strategy.
(09:27):
But we were you know, we were the ones turning
the keys.
Speaker 2 (09:30):
So then how did how what what happened when things
went bad? So you bought a six unit and a
three unit and it seems like that's when things kind
of fell apart.
Speaker 1 (09:43):
Yeah, actually, yeah, you know, we we were both my
my partner and I were just very growth oriented and
and and still are today. But you know, we kept
thinking and honestly we kept hearing you know, on podcasts
and YouTube videos and stuff that, like, you know, this
(10:06):
thing about getting out of your comfort zone and you know,
starting to do bigger deals that can change your life
quicker and and that you know that idea, And so
we said, okay, let let's start looking a little a
little bigger. Let's start to dip our toes into the
commercial space so you know, five plus units and start
(10:27):
figuring out how, you know, how people structure those deals,
and how the underwriting is for those deals, and how
the you know, the financing, just all of it. And so,
you know, we we got a six unit, we actually
got it off market. We got the triplex off market
as well. Both of them needed you know, full scale,
(10:49):
full scale renovations cosmetically. But you know, we were we
were under the impression structurally they were good and kind
of the systems within the properties were good. That turned
out not to be the case, which is which kind
of led us down, ah, you know, money pit type
of path. But but yeah, so essentially to answer your question, yeah,
(11:10):
we we wanted to get out of our comfort zone,
and so we started tackling these larger properties.
Speaker 2 (11:15):
So what happened, like what was different with with those
properties than the duplexes.
Speaker 1 (11:21):
Yeah, you know, Uh, it's it's one hundred percent on
us to do our you know, proper due diligence and
to hire the right people and and that sort of thing.
But specifically with the six units, Uh, there was just
a lot that there there was a lot that was
wrong with it that the home inspection didn't necessarily highlight
(11:45):
or or even have in the home inspection, and so
there was some pretty major structural things that were wrong
with it. I think the electrical issues were pointed out, uh,
and and we we had we had that in the
budget accounted for because we knew the deal with that,
we had to basically fully redo the electrical system for
(12:07):
the entire building. But there was some structural things that
were wrong with it that we weren't aware of until
after we closed and we were you know in renovations
and things, and so obviously you know, structure structural issues
with kind of this like large ish you know building
that has six units in it, like six true apartment units,
(12:30):
you know, that was that was something we had not
accounted for, and that was something that was very expensive,
if I remember correctly, it was I think it increased
ourt budget by like eighty something thousand or something like that,
which is yeah, major, Yeah, it turned into a major major,
like full got rehab for this six unit building very quickly,
and there were a lot of plumbing issues and things
that we encountered as well. But yeah, that was kind
(12:54):
of the beginning of it. We just we missed some major,
major things on the due diligence side, and you know
that a and then COVID was happening at this time too,
write so that was kind of an extra layer and
so and so we it was kind of the perfect
storm to you know, Okay, now the renovations budget is
(13:14):
double what we thought it was going to be, and
it was already big to start with, and and now
the timeline has you know, more than tripled because uh,
you know, because we're dealing with some of this COVID
stuff and now we're kind of limited on getting permits
for things. And it was really a perfect storm.
Speaker 2 (13:32):
So like, looking back on it, was there anything that
you could have done differently or maybe something you missed
to pick up on the structural stuff, I.
Speaker 1 (13:44):
Think I think maybe getting in some sort of structural
specialists would be good if a property is over a
certain age, because something I failed to mention is I
mean this this property, this property was outside of our buybox, right,
Like we wanted to buy in nineteen eighty or newer,
(14:05):
and this property was like one hundred years old. So yeah,
so I think, you know, with a property like that,
I think getting a specialist for each portion of the
property that needs to be like thoroughly inspected, I think
that would probably be worth the money.
Speaker 2 (14:23):
So why did you Why did you change that? Because
it seemed like you had a great thing going with
the duplex, is that they didn't need a lot of
rehab It seems like you were renting them pretty quickly.
Everything was going good, like you had a really good
thing going. Why did you change change your strategy? Why
(14:43):
did you go outside of your buybox?
Speaker 1 (14:47):
Yeah, I think I think we just really wanted to
get into a commercial deal, you know, like commercial you know,
being a small commercial deal, being six year units. But
we really just wanted to start to get into the
larger property space and kind of work our way up.
(15:09):
And you know, my partner and I both working full
time jobs at the time, also had other side businesses
and just doing way too much like cold we couldn't
give this the attention it deserved, and so I think
making decisions that weren't fully informed, and we're just like, well,
we really want to close on this deal so that
(15:30):
we can you know, now we can say we're in
the commercial space and we're working our way up into
larger and larger properties. So we're you know, we're willing,
for some reason to kind of you know, fudge on
our spreadsheet and our buybox to make this thing work,
and you know, maybe making some assumptions that just aren't
(15:51):
you know, are too optimistic. That makes sense.
Speaker 2 (15:55):
So it's like you got excited about this deal and
you wanted to make it work, but you just overlooked,
overlooked the wrong things to get it going. So then
did you ever get the property rented out before you
guys walked away from it?
Speaker 1 (16:13):
We did, Yeah, we did. Yeah. The the renovations just
kind of drug on and and so, you know, no
one wants to live in a construction zone, right, so
as soon as we have one unit live and we
did some major things to these units and they ended
up looking you know, nice and being being of good
quality and a good place to live, but they were
(16:37):
just hard to rent because we were still doing construction
on the other units, you know, so we we did
successfully get some tenants in there, and uh, you know,
if the full building would have been done on schedule,
I think we would have been able to keep it.
I think we could have figured out how to keep
it and it would have cash flowed. But but yeah,
(16:59):
just drug out so long and and I want to
say maybe half the building was was rented by the
time we were able to sell it. And you know,
like I said, this was during COVID, so people were
kind of you know, pulling back from purchasing these types
of assets just because no one knew what was going
(17:20):
to happen. You know. So maybe if we could have
held it through COVID, then on the on the backside
of COVID, after everything had you know, basically doubled across
the country, maybe we could have made out better on it.
But but yeah, we Uh, something I haven't mentioned either
is we had a hard money loan on it. That
was that was just a part of our process. Hard
(17:41):
money loan get into the property quickly, you know, be
easy to work with on the acquisition side, and then
if we need to raise money for innovations, we raise money.
And you know, we always know, we can pay everything
back just using that very efficient Burr strategy. But in
this case, you know, we went way long on the
(18:02):
hard money lawn and so we were racking up extension fees,
and our general contractor, who we had a relationship with
for a good relationship for over two years, we ended
up falling out with them, which caused us to fall
out with the property management company who we were working
with for over two years, who who you know, works
(18:23):
closely with this general contractor, and ended up getting into
a mild lawsuit there. So that's just something else that
happened with this with this six unit. But we ended up,
you know, able to get out from under everything, but
but it took a while and it took a lot
of cash. So we we ended up having to sell
(18:43):
you know, these awesome duplexes that you know, that were
cash flowing and that had some good equity in them
and that were amazing assets, uh, just to cover our
losses on the other side of the portfolio.
Speaker 2 (18:56):
So to keep everything moving with with paying the hard
money loan, because you I assume you weren't bringing in
enough rent to cover the hard money loan.
Speaker 1 (19:05):
Yeah, not even close.
Speaker 2 (19:07):
Okay, So so you're losing money on that, and then
you had to come up with the extra rehab money
with the foundation problems. So how were you funding that?
Like were you raising money or were you dipping into
your savings or how did you cover that on a
monthly basis? Oh?
Speaker 1 (19:25):
Yeah, all of the above. Yeah, we we raised We
went back to our existing capital partners and you know,
raised more money from them. Obviously we were one hundred
percent transparent about everything, but these are you know, close
friends of ours, so they understood, and they knew, they
(19:46):
knew no matter what, they were going to get their
money back with interest, because that's just that's just how
we operate, that's just our character. And so and we
ended up acquiring i think one more private money lender
to cover some things on this deal so that we
could just get it sold. But yeah, we were dumping
our personal uh savings into it. Like I right around
(20:07):
this time, you know, I had started uh started my
bookkeeping firm that served to the state investors, which is
which is how we met. And I was basically the
money that that was making. I was basically just you know,
shoveling it over here to the sixth unit to try
to save us. And you know, I took out a
(20:29):
home equity line of credit on a duplex that I
was house hacking in Utah at the time, and you know,
I used that heat lock to pour more money into
it just so we could you know, keep it going
and eventually sell it. But yeah, in the end, what
really saved us was our portfolio of duplexes that had
some some good equity in them. So we it hurt.
(20:52):
It hurt a lot to sell those. I wish I
still own those today, but but that's really what ended
up saving us.
Speaker 2 (20:58):
So you had to sell the dow flexes to raise
money to pay back your investors, pay back your keylock,
and basically those properties saved you.
Speaker 1 (21:09):
Exactly, yeah, exactly. Yeah. Yeah, we were one hundred percent
committed to paying back all of our all of our lenders,
all of our investors, you know, with the interests that
they're owed, no matter what the contract says, right like,
we're gonna we're going to get them what what they're
owed as as how we see it. And so yeah, yeah,
(21:30):
we were able to cover everything by selling those and
that's such a shame.
Speaker 2 (21:34):
I mean, you had those those duplexes that sounded like
they were great properties. It just it's a shame that
you had to lose them to dig yourself out of
this hole on the sixth unit like that, that's got
to drive you crazy.
Speaker 1 (21:50):
It hurt, It hurt. Yeah, I always tell people if
if we you know, whenever we made the decision to
purchase the sixth unit and the Tripolate we lost some
money on the Tripex as well, But whenever we made
the decision to purchase those, we we were at a
true crossroads. We we had another we had a we
had another packaged duplex portfolio that we were considering again
(22:13):
in this same neighborhood that we already knew. But we
chose to to go the other route because we didn't
want to get stuck in this one strategy, you know,
we wanted to start to expand, and so we said
no to the to the deal where we knew we
could make money and be successful, to try the new thing,
which I think is just a it's just a rookie mistake,
(22:35):
you know that that's a mistake that a lot of
people make that are that are new to it. And yeah,
I tell you all the time, if we would have
just kept doing the strategy that the boring thing that
was actually making money. Like you know, we would we
would both be in a just different financial, you know
position today. Yeah, I mean it's just so crazy.
Speaker 2 (22:58):
I mean, it's it all almost makes me think that
it's maybe not better to go big. That if you
find something that works, just keep doing it, even if
it's not as exciting as as a bigger property, Just
keep doing the small, boring deals.
Speaker 1 (23:16):
Yeah. And and I don't for me, it's not necessarily
about you know, just do small deals and be good
with that and make money with that. It's it's really
just if I think it's just focusing. You know, like
we we tend to see the new shiny object and
it's like, oh, let's go over here, let's go over there,
(23:36):
let's try this, let's try that. But you know, because
staying focused and committed to it to one thing. For
someone who is of like an entrepreneurial personality, it's just tough.
It can kind of become boring and monotonous. But but yeah,
I urge people like, if if you have a strategy
that you have dialed in, you have systems and processes
(23:58):
and people built around on that strategy, and the strategy
is actually making money, Like just do more of that,
like ten x that. Don't don't go do something new
that you're going to have to go figure out just
because you're bored or because you heard something on a podcast,
like do the thing that makes money and that you
can actually because you know that that was a very
(24:21):
scalable model for us. We were tied to that one neighborhood.
But our model was extremely scalable, you know, at least
for the next few years, and it was making money.
So so yeah, I I try to harbor on the
past and like I'm so happy like all the lessons learned,
Like I have documented lessons learned out of that whole thing, right,
(24:43):
and and those lessons learned have allowed me to do
the things that I'm doing today in a much better way.
But but yeah, it it hurts.
Speaker 2 (24:53):
It hurts so as far as like what someone can
learn from your experience. So it's it seems like, make
sure that you do your due diligence, make sure you
get a good inspection and understand what you're walking into.
And then it seems like the aide of the property
was also an issue. Maybe maybe stick stick to newer properties.
(25:17):
Is that something you would do.
Speaker 1 (25:20):
I mean, I, you know, through our bookkeeping firm, like
we serve a ton of investors, all different markets, different strategies,
different asset types, you know, old properties, new properties, Like
I don't. I don't think it's about staying you know,
with newer properties. I think it's just like on once
you have a dialed in bybox that works, I think
(25:42):
it's just sticking with that buybox until something breaks and
then it's like, okay, we need to you know something
we tell our clients in the bookkeeping firm, like our
big thing is decision ready financials, and so we want
to be able to look at the financial data and
actually make decisions from that, like acquisitions, you know, decisions
(26:02):
let's tighten up the buybox or let's alter it because
these types of dells are the most profitable for you
right now, like things like that, and so I I
think it's more so about you know, just staying disciplined
to where it's like, no, this is my bybox, this
is what I'm looking for, and I'm gonna I'm going
(26:23):
to stay within this bybox because like there's a reason
I created this bybox, you know, like it's based on
experience or maybe even someone else's experience.
Speaker 2 (26:33):
That makes sense. Well, if anybody wants to connect with Max,
or if you're looking for bookkeeping for your real estate business.
As Max mentioned, he owns a company that does bookkeeping
for investors, and I've got a link to his website
on my website. You can find it at Rental Income
Podcast dot com slash episode five forty two. I'd like
(26:55):
to thank Chailey Ridge from Ridge Lending Group for sponsoring
today's episodeisode. If you're looking to buy a rental property,
whether you're just getting started or you want to add
to your portfolio, reach out to Chailey. She's a nationwide lender.
She has a ton of different loan programs and she
can find something that works for you. If you want
(27:16):
to connect with her, just go to Ridgelendinggroup dot com
n MLS four two zero five six. Thank you so
much for checking out the podcast today. Make sure you
hit that follow button. I put out a new interview
every single Tuesday, and if you're following the show, you'll
get notified when the next episode comes out. My name
(27:39):
is Dan Lane and this has been the Rental Income
Podcast
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