Quitting His Job with Real Estate After Cracking the Cash Flow Code

Ashley:
Ever wondered how some investors are maximizing cashflow in today’s competitive real estate markets? Today’s guest has cracked the code with a unique strategy co-living by creating shared community oriented spaces. He’s achieving impressive cash on cash returns that outperformed traditional rentals. Tune in to learn why co-living might just be the ultimate strategy for real estate investors looking to boost their returns and how it could work for you too. This is the Real Estate Rookie podcast. I’m Ashley Kehr and I’m here with Tony J Robinson.

Tony:
And welcome to the podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today, super excited to welcome Miller McSwain to the podcast. Miller, thanks so much for jumping on with us today, brother.

Miller:
Yeah, thanks for having me. I’m stoked to talk all about co-Living.

Ashley:
Yeah, Miller, before co-Living even became involved in your life, give us a snapshot of what you were doing before real estate.

Miller:
Yeah, so before real estate, I was a nuclear rocket scientist. So interesting title, very hard to do. And so I’m glad that I’ve since transitioned to being full-time real estate. But yes, that’s what I was doing before this. It was a great W2 that kind of got us started as far as that was great income that we could use to buy our first handful of house hacks that turned into a larger portfolio down the road, but that was kind of the kickstart that gave us our initial portfolio.

Ashley:
And Miller, why did you decide to choose real estate as the wealth vehicle that to you wanted to dump that money into compared to all the other investments there are out there?

Miller:
It wasn’t the original idea. Whenever I was in high school, I had a coach who was teaching economics and he did not teach economics at all. He just threw Dave Ramsey videos up on the board.

Ashley:
I mean, honestly, not a bad thing. I can’t remember anything I learned in economics in high school, but I do know Dave Ramsey and principals, he teaches,

Miller:
Yeah, it was much better than knowing about Federal Reserve and well, I dunno, maybe that’s becoming more applicable now, but I found it much more valuable to know about how to budget, what our mutual funds, index funds, those kinds of things. But really that’s where I kind of learned what compound interest is because Dave’s great about showing all these plots like, Hey, if you put in a thousand bucks for the first five years by 40, it turns into this versus the guy who started investing 15 years later and put in 10 grand a month or whatever. So that’s kind of where I learned that principle. And so throughout college, as I was doing internships and started making money, I would dump all that into index funds, mutual funds. And honestly, that did grow to be a pretty decent chunk that helped us buy our first house act.

Miller:
But I was sitting there in college thinking about what all these returns look like. And I remember that my parents had mentioned that they would buy me a duplex in college, I could learn how to manage and all this kind of stuff, and that did not happen. I’m sitting in an apartment as I’m thinking about this, it was great that they planted that seed, but then I started doing some research and I was like, oh, this is potentially a faster way to build wealth. It’s a little bit more involved. You have a little bit more control, which is something that I’m a fan of. So then that kind of got me started on the real estate path.

Tony:
I want to get into the co living strategy, which you’ve kind of nailed to help you scale this portfolio in a profitable way. But before we do you share with us before we hit record, that you had a recent life event as it relates to your day job. So what was that man? And kind of give us the backstory and how you got there so quickly.

Miller:
So I worked in that W2 for probably two and a half years, and as of a couple of months ago, I quit that to full-time, purchased more co-living properties, focus on optimizing management even more, and just focus on the self-employed business side of things. The way that I was able to do that, honestly, I think I made that jump earlier than a lot of people would. So I know a lot of rookies out there. That’s the goal you want to get out of your W2, you want to quit your job job and focus on something that you can build yourself. And there’s a spectrum of when people feel comfortable enough to quit. So in my case, my advantage was that I have a wife who has a job,

Ashley:
Moral of the story, go get a wife that has a job investing strategy.

Miller:
So she works a job, she makes, I mean, I don’t mind saying here, I guess. So she makes around 60 grand a year, and we’ve kept our expenses low enough to where that covers all of our expenses. So whenever I did have a job, it was gravy on top and that was great. That helped us scale, but we got to the point to where it’s like, Hey, I can lose the money that I was making. We can reduce our income by half still survive, pay for groceries, pay for, I mean our housing’s covered because we house hack, but pay for all the things that we need to pay for and that will give me the time to really scale the business so that if we did stay with the W twos three years down the line, we might be at 150,000 a year gross, but instead we’re going to cut it right now, but then three years down the line, we’ll be way higher because we’ve had that exponential growth. I had time to spend on the business.

Tony:
Well, first Miller, congratulations on taking that leap. I think it’s always cool to see someone use real estate as a vehicle to actually achieve some level of financial independence. But two things I want to comment on because I think they’re important for the rookies to understand. First was that you didn’t just jump off Willy-nilly, right? You were very methodical and intentional about keeping your expenses low enough to the point where you could survive on a single income. So even if Miller’s real estate investing activities didn’t bear the fruit that you were looking for, you could still make sure that the lights were paid, the lights were on, bills are paid, and everything’s solid there. So I think that’s the first piece, but the second you’ve got a degree and an experience as an engineer that is probably going to be just as marketable two years from now, five years from now, 10 years from now.

Tony:
So the absolute worst case scenario for Miller is that you attempt to go full-time into your real estate business. You try it for 12 months, 24 months, 36 months, it doesn’t work. And then you just go dust off the old resume and get a job as an engineer making the same amount of money you’re probably making before, maybe even more. So the worst case scenario for you is what you were already doing. So I think there’s a lot of comfort in knowing that, hey, if this doesn’t work out, I can just go back to what I was doing before. Did that cross your mind at all as you were kind of walking through that decision?

Miller:
Yeah. Yeah. That was an important piece. I think it’s important to maintain good relationships at your job, don’t burn the bridges, all of that. So be a good, great employee while you’re there. Whenever I did give my notice, also be generous with that. I knew I was going to quit, but I gave ’em two or three months just to help keep things alive there. But yeah, I mean they were like, will you please stay, please? And I’m like, I don’t know. Maybe I feel like I should just totally cut this off and go do my thing. But they offered that and then they’re like, okay, well whenever you want to come back, then you’re welcome. So I think keeping those bridges alive is a great idea. Before you make the jump,

Ashley:
Before we get further into the show, Miller, kind of give us an overview of what your portfolio looks like today.

Miller:
Yeah, so right now we’re at six properties, which is 41 rooms. And that just quick recap is that was we had one house hack. We had a second house hack. I still live in the second house hack. So this is totally a rookie applicable strategy. We’ve been here for a couple of years and since then we’ve bought four more that we do not live in. So that’s where we got the total of six.

Ashley:
So let’s get into that strategy. I mean five properties, what was it, 41 units you said That’s a lot of units packed into these properties and they’re not small multifamily. These are single family homes then that you’re purchasing. Okay, so let’s go into co-living. Give us the breakdown of what this is and how you implemented this strategy into your properties.

Miller:
So I think when you’re thinking about buying a property today or anytime within the last couple of years, we’re in higher price type market. We’re in higher interest rate type markets. So in most cities across the US it’s going to be difficult to buy a long-term rental just out of the box, 20%, down, 5% down, whatever, and make it cashflow. So you’re going to need to do something a little bit special to kind of get that cashflow out so that you can live off of it or reinvest it or whatever you want to do. So kind of the three strategies that always come to mind is like you could short term rental a property and you can do this, all these strategies you can do when you live there as a house hack, or you could do it in something that you don’t live in, that you move out of, but either you’re going to short term it, you’re going to midterm it 30 days or longer and it’s furnished whole private space or you could rent out rooms.

Miller:
And so we evaluated all of those strategies and landed on renting rooms. And historically there’s been some stigma that can go along with that. It’s like, hey, you’re just cramming a bunch of people into a house. And even more recently, if you look around online, a lot of people are getting rid of living rooms, getting rid of common spaces so that they can pack in more rooms and eat more cashflow out. And I think it’s because of the interest rate environment and it’s tougher to cashflow than ever, but I’m not a fan of doing that. So instead of just renting rooms, I’m doing what we’re calling co-Living, which stands for the CO is community, community living. And the idea behind this is, yeah, you’re renting out rooms, but you have a big emphasis on keeping the living room, having house events, doing all these things to spur friendships within the house because I mean, a lot of people are just really lonely out there, honestly. So this kind of helps out with that and of course helps out with a lot of the affordability issues that renters can see in these bigger cities.

Ashley:
Ricks we want to hit 100,000 subscribers on YouTube and we need your help while we take a quick ad break. You can go on over to youtube.com/at realestate rookie and make sure you’re subscribed to the channel. Stay tuned after a break for more from Miller.

Tony:
Hi guys, welcome back to the show where we are joined by Miller.

Ashley:
So with the co-living, what are some things you’re looking at or amenities that you’re looking at when you’re purchasing a property? What does your buy box look like as you’re analyzing them?

Miller:
Yeah, so I think it starts with the market. Not every market’s going to be great for this. A lot of them will be, but not everyone will. So when you’re looking at the market piece, the first thing that I look for is how unaffordable our rents there. Because you guys have heard with midterm rentals, you’ve heard of traveling nurses. That’s the typical person that you’re going to rent to in the co-living space. The typical average tenant that everyone’s looking for is just lower income workers. So we have elementary school teachers, social workers, security guards, minimum wage people. So if you can find a city where those people exist, then you’re probably in good shape. So what that means is you’re going to look for rental unaffordability. So specifically if you look at studio rents in a market or you look at one bedroom apartment rents, that’s the most comparable to a room historically, that’s going to be the cheapest thing that someone can go after.

Miller:
So if you look at that and divided by what the typical income is in the area, the higher that percentage means it’s rooms should be in more demand because people need cheaper housing there. So I’d say kind of start out by doing that, but once you start looking at houses specifically, the easiest thing to screen them out on is parking. Most houses do not have sufficient parking, and that’s a lesson that we learned the hard way. The first two houses that we bought, the two house hacks and both of those, I didn’t really care about parking too much. I knew legally we can park on the street wherever we want to, so legally I’m in the right, so we’ll buy this house. And we’ve had issues at both houses at that first one. Once we got the house filled up, I had to park across the street in front of a neighbor’s house and I came out one morning and all my decals had been pried off in my truck and they’re sitting on the ground.

Ashley:
Oh my god, geez.

Miller:
So maybe that’s an extreme case, but even in my current house hack, sometimes neighbors will come ask me, Hey, what’s up with all the parking? And fortunately I live here right now, so I’m like, oh, mortgage is just expensive. So I have some roommates so it kind of goes over a little bit easier. But if I didn’t live here and it’s like, oh, it’s a rental property, then I imagine you could start to see some issues. So first things looking for parking, that can be garage parking. So two car garage, you can have two people there. It could be street parking in front of your own house. It could be a corner lot where you park along the side of your own house or kind of the sneaky one that you can put in there is across the street. If it’s like a neighbor’s side yard, like they’re on a corner lot and they have a fence along it, then I don’t mind if we parked there because the owner’s not going to see the cars and all of that. We found that that’s been okay, but never park in front of someone’s house. That’s the first thing to look for.

Tony:
Now Miller, appreciate the breakdown on the market piece and kind of what to look for. And the affordability focus I think is such a smart way to kind of tackle that because if one bedrooms, I pulled it up and in the area that I’m at, we have one bedrooms going for 1900 to over 2000 bucks for a one bedroom. There’s some that are close to three grand, which is so out. So it makes sense.

Ashley:
Ours are like seven 50

Tony:
Even where I live, right? There’s opportunity.

Miller:
Yeah, if you do see that rents are seven 50, then that is an indicator that, hey, why would anyone rent a 500 $600 room when they can have their entire private space for 700 bucks? So that’s a great example of why we do look for the places with the $1,700, $1,800 rents and then incomes are not keeping up with that.

Tony:
I want to get into kind of how you’re choosing the properties here, but before we transition over there, Miller, I just want to really clarify for the listeners what the difference is between co-living and then just a traditional rent by the room type strategy. So I guess is there a difference, and if there is, can you clearly identify what those differences are?

Miller:
Yeah, there’s a difference now that it’s become a need to differentiate those two things just because in the space at this point, it’s becoming more common, like I said, to get rid of those community type spaces. I mean, in 2020 when you could buy things at a decent price and you still had the lower interest rates, it was easy to buy a five bedroom house that would cashflow if you rented out five rooms. As times got tougher so that people could maintain cashflow, they started cutting out those community spaces. So that’s where I think why I differentiate this into a little bit different of a class because even in the current environment you can still, we cashflow very strongly on these properties, but it does take more work to do that. We look at 800 listings before we close on one, whereas the guy who’s cool with getting rid of his living room could probably look at five listings and find one that works.

Tony:
Can you clarify what do you mean getting rid of the living room?

Miller:
Yeah, good question. So it’s becoming more common to wall off, basically turn the living room into a bedroom, which building bedrooms is the name of the game with a strategy. We do build bedrooms and houses all the time, but we make sure to preserve the living room because we want to have space for the community events that we throw. We want people to come home from work and sit down on the couch and turn the TV on and then someone else walked through the living room and Oh, you’re watching this show. I’m watching it too. Let’s sit down and hang out and watch it. So that’s what I mean is turning the living room into a bedroom.

Tony:
You’ve mentioned community events a couple of times here as well, Miller, explain that as well. Are you actually hosting as the landlord different things within the property itself or do you mean you’re getting all of your different properties together in one kind of communal event? Describe the community piece.

Miller:
There’s no set guide for how to do this strategy at this point. So there’s a lot of different ways that you could do things that could be the right way. What I mean by this personally is that everything that we do on our properties, I want to be able to do remotely because if I do have to go over there, it is going to hinder scale. But if you want to have five places and you want to live next to all of them, that’s totally cool if you go over there and fire up the grill and have your residents come out and get feedback and chat with them and everything. So I think that is a great idea. But in our case, what I mean is we’re doing things like having pizza nights totally doable remotely. I can pull up the Papa John’s app and schedule for three days down the line to deliver pizza at 7:00 PM and then just message all the residents, Hey, pizza’s going to be here, come downstairs, grab a slice and meet your housemates.

Miller:
And the idea behind this is that one, it allows people to meet each other and socially they can get friends and help with mental health and all that kind of stuff. But two, it really does help out me as the landlord, as the investor as well. Because as soon as somebody meets one friend, they’re likely to stay there for three months extra six months extra just because they have a buddy in the house now. Because by default when you move into these houses, you’re shuffling around avoiding people, but just by providing spark for people to meet that really helps reduce your turnover and all that while they make friends as well. But you could also do game nights and movie nights and there’s a lot of options.

Ashley:
And then there’s me who hides when the mail lady comes just to drop off a, so the big question that I think a lot of people are always wondering in these situations as what are some of the expectations you have to set? So there are not disagreements and how do you handle the disagreements?

Miller:
There’s a lot of preemptive things that you need to do to reduce conflict before it happens. I guess I would say as far as when conflict does happen, you just got to handle it. You got to email people and call people and it’s going to be different for each situation, but you can stop these things from happening in the beginning. So my wife and I, we lived in room rentals throughout college. So when we went to go do our first house hack, we knew what could go wrong because it’s happened to us. So for example, whenever I moved into my college apartment, all the other guys that already lived there, I didn’t know them. So I was moving in just the new guy and I bought toilet paper for the room for the bathroom that me and the guy shared. And I noticed that my toilet paper stash is going down way quicker than it should be.

Miller:
There’s no way I’m using this much. So obviously the other guy’s using it. And that’s going to happen. That’s what’s going to happen in these sort of properties. So to mitigate stuff like that and prevent friction that would kind of occur between residents. We provide all shared supplies for the house. So you could think of this kind of like a short-term rental. A lot of the things we do, we really modeled after that strategy. We do want to provide an exceptional experience with co-living, but I mean that may sound like a headache, like, oh, how are you going to provide toilet paper? So any consumable that’s used by multiple people, we’re going to provide. So how do we provide toilet paper and paper towels and trash bags and dish soap and hand soaps and all of this. I’m not driving around every Saturday dropping supplies off.

Miller:
Like I said, we want to do this remotely. So it, it’s as easy as just ordering the stuff on Amazon. Two days later it shows up. And I guess just like a quick tip on the label for the name, we just put resident put in supply closet so it shows up, it’s labeled, they know exactly what it’s for and they’ll put it in the supply closet. And the way that we get notified about this, we used to just have people text us like, Hey, I pulled the last toilet paper roll, can you guys order some more? And that worked for a while, but now we have a laminated sheet on the supply closet with a QR code on it that just goes to something like a Google form and you could totally use that. And they just drop down, what house are you at? Drop down. I’m amount of batteries for the TV remote. Boom, it’ll show up in two days. So that’s one thing, but there’s probably a lot of tips we could go into.

Ashley:
Yeah, that’s awesome. I think right there, the QR code is such a great idea.

Tony:
And you read my mind, I was going to ask how you’re managing inventory. I know how we do on the short-term side, but I just want to plug, I have no relation to this company, but I’ve met them. I met the owner and it seemed like a cool tool, but supply mate.io, supply mate.io, and they’re a tool. They initially started off in the automotive industry where they were helping people in service departments at dealerships manage inventory, but they’ve kind of recognized the need to manage inventory in different industries. But supply made.io and basically what you said, there’s different QR codes associated to different products and then it kind of feeds into the software that you then get notified as the person you can kind of track, see what’s been ordered, what hasn’t. So just if folks are looking for a tool to manage that supply made, IO is one to check out.

Ashley:
Tony, a question for you. Is there any other property management software that has this integrated already for long-term rentals? AppFolio has an inventory integrated and we use it for our locks and smoke alarms, just things like that where we can buy in bulk and then we go and charge whatever property it went to. But does any short-term rental software have that already integrated?

Tony:
Yeah, some of the PMSs might have that built in, but there’s a tool that we use called Breezeway that has an inventory kind of functionality. And breezeway is what we use for all of our back of house operations. So that’s where we schedule all our cleaning, take care of our maintenance tasks, but there is no QR code functionality. So really it’s just like as the cleaners take things, they can decrement it systemically as they’re doing their cleans, but there’s no QR code to say, Hey, we need to reorder this thing. So it works in a slightly different way, but you achieve the same end result.

Ashley:
Okay. So Miller, any other tips and tricks you got process here you want to share? Because this is awesome. I think really valuable for someone, even if they’re not doing co-living, I think a lot of the stuff is applicable to any kind of system you’re creating to run rentals.

Miller:
Some other big ones that we’ve done that have really helped things, we have a handyman that goes through and does quarterly inspections on the properties. So with co-living, you have six, seven people in a house. It’s like you’re going to have more wear and tear for some reason there’s always a toilet seat that has a crack in it. I don’t know why, but at any given time, one of my toilet seats is cracked. You’ll get more use on the faucets. They’re just going to leak faster anyway. A lot of these things, you’re going to have door stoppers that go missing. People are opening sudden doors. So whenever we get those sort of requests that aren’t super immediate, like, oh, we’re missing a doorstopper, okay, I’m just going to add that to a list. I’m not going to have my handyman go out to just install one doorstopper because they’re okay without that for the next month.

Miller:
That’s fine. Then we’ll have our handyman come through on this every three months, hit all of those things at the same time. Like I said, we want to be able to manage totally remotely. I do live near my properties, but I don’t want to go to them if I don’t have to. And so we have him record the entire house record inside of all the bedrooms. He has access to all the electronic clocks and everything. So goes through the bedrooms, records, everything, uploads it, and I can review it to make sure no one has a dog, nobody has holes in their walls, that sort of stuff.

Tony:
Alright guys, we need to take our final ad break, but we’ll be right back after this.

Ashley:
Okay, let’s jump back in with Miller Miller before you go into the next one, what are you paying the handyman to do these inspections per property?

Miller:
Yeah, I think it’s like a hundred bucks per 80 bucks per, so it’s effectively two hours of his time or so. And the more properties you have, I guess I’ll say the better you can get on pricing. So I’ll kind of lead that into the next tip is we have a cleaner that comes through in our case on a monthly basis. So a lot of our residents are military, so they’re typically clean and orderly and all that. If you had students for example, that’s another category that you could cater to, maybe you need to go every two weeks or every week. They’re just going to be a little bit messier probably. So they need to go at some sort of frequency. But the cleanings are a lot cheaper than you would think because if a cleaning in your market usually runs like $300 or 250, let’s say that’s for cleaning the whole house, we don’t need the entire house cleaned. Residents take care of their own. They’re going to vacuum and do whatever they need to do in there. We’re just cleaning the shared spaces, living room, kitchen, shared bathroom. So it’s about half of the house. It works out to be about half of the price, but you have to find a company willing to take that on though.

Ashley:
So it seems like you have a lot of the common things that could cause issues taken care of and included in the rent, which I think is a great idea, especially not having to fight over a dirty bathroom with the person you’re living with or who’s using all of the toilet paper.

Tony:
One follow up, Ashley, before we move off of this piece, and I guess somewhat connected, including a lot Miller in the property, which is maybe more than what a typical tenant is accustomed to. They’re getting the consumables, they’re getting the cleaning, there’s maintenance and stuff that’s involved. How are you marketing this when you’re actually posting these places for rent to really communicate all of what’s included?

Miller:
So of course there’s rental descriptions, but no one reads those. We have all of that in there, but in reality what happens is people hop on Facebook or whatever listing site they’re going to and they sort by price and they message the top 10, and then whoever replies first is who they’re going to look into further. So I guess I’ll say reply really quickly, but as far as we’re how we’re conveying these benefits, I think the biggest thing that we do is whenever we reply, I include a YouTube link to the specific room that they’re interested in, which gets them personally kind of involved. So for example, if you’re on Zillow and you’re looking for a house to buy, and I think they do this for rentals too, but you can do those 3D walkthrough things where you’re walking around and can get a better sense of the space.

Miller:
That’s cool, but it’s so cold, right? No one’s talking over it. Even when there’s wholesalers sending videos, they’re just walking around not saying anything, and it’s a very cold sales approach. So instead we have this YouTube tour of the whole house plus that room that they’re interested in. And I’m talking over the entire thing. I’m like, oh yeah, here’s the kitchen. You can think of it like a short-term rental. We’re going to provide everything you need except for your food. Oh, here’s the wifi, the WiFi’s included. So I’m talking over it, explaining the benefits, and people are very likely to watch that YouTube link, whereas they’re not very likely to check out that listing description.

Tony:
Miller, I can tell that you’ve got an engineering background because every question that we ask you, you’re like, oh yeah, here’s the exact process that I have laid out for how to tackle this thing, man. So I love that.

Miller:
Yeah,

Ashley:
It was almost like he was a rocket scientist.

Tony:
I know. It’s interesting, huh?

Ashley:
Okay, so along the lines of you’ve great all of this information to give ahead to your prospective tenants, but what are you doing to give them, to ensure some kind of privacy and balance so that it’s not just all shared all community? Is there anything that you’re doing for that kind of aspect of it? Or maybe somebody who doesn’t want to completely live with other people?

Miller:
Yeah, so I mean, first thing, their bedroom’s totally private. I’ve talked to some operators in this space who don’t put locks on the doors, which I cannot imagine not having a lock on a bedroom door, especially when you live with random people. So first off, of course there’s locks on the doors and they’re electronic, and that’s great. We can program them from afar that’s super great so they can retreat to that space at any point that they want to. But yeah, all the community stuff is totally optional. I mean, we find that even if somebody doesn’t seem too keen on it, eventually they hop in and it’s kind of a benefit to them. But if they don’t want to, they definitely don’t have to. But it just kind of does improve the experience, I would say.

Ashley:
Now what about the screening of them? There’s definitely different rules. If you are living in the property, you can be more selective and don’t have to be as strict with fair housing. But what about the properties you are not living in? How are you screening them? Is there anything specific you’re doing to make sure they get along with the other residents that are already in there?

Miller:
So I’m going to give you a super engineering answer. There’s a funnel and we put a lot of things into the top and a certain percentage will convert along each step. So breaking this down, we’re going to bring a lot of people into the top of this funnel. Well, lemme start by saying this. So if you have a long-term rental, for example, let’s say, yeah, you’re a rookie and you have two properties that you’ve moved out of and you turn ’em into long-term rentals. The marketing headache there is very low. It’s like you have two properties, they’re going to stay there for three years on average, let’s say, okay, you’re filling a vacancy every year or less than that. So you can kind of willy-nilly like, oh, there’s a vacancy. Let me go handle that. Nothing too crazy. With a co-living property, let’s say you have two properties, six bedrooms each, and they stay on average for a year, you’re going to have a turnover every month on average in that case.

Miller:
So you’re always looking for someone new. So that’s where a funnel does come in handy because you’re always bringing people in. You always need a certain amount to come out of the bottom and become residents. So bring people into that funnel listing on Facebook and Zillow and some of these places. But then the next piece that we do is part of the screening is everyone who messages us, we include that YouTube link, and then we include a link to something like a Google form that asks the exact same questions as the application, like the exact same thing. It’s just free and it’s unverified information. So instead of it running a credit check, it just says, Hey, what do you think your credit score is? Instead of having all their pay stubs, just like, Hey, what do you think your income is? And based on those responses, you can do it automatically or you can do it manually in the beginning, but we can reply to them and say, Hey, it looks like you’ll qualify.

Miller:
Here’s a link to the application. If it looks like they may not, you still need to allow them to apply because they haven’t technically been denied, but you can say, Hey, it looks like your credit score wouldn’t meet the requirement. Feel free to apply if you want to. So then a certain percentage will apply, and at that point, that’s where the real screening kicks in. So the application, the data that we get back super standard to any long-term rental that you could read about in any book out there, we’re going to check their credit. We’re going to do look at their pay statements and see if they make enough. But where it gets a little bit special for co-living, I mean everyone should do this, but we do actually check the rental references. We actually do call them and text them and email them. And the reason that we do this is because it’s a really good indicator of if they have good references, they probably have pretty good behavior, they’ll mingle in the house.

Miller:
Well, there’s going to be less issues if we have references from people who’ve actually met them and said that they’ve left the place clean, they were nice and all that sort of stuff. So we will actually reach out to them. And I think one special thing that we do is we actually adjust the security deposit based on how many positive references we get. So the reason behind this, let’s say that someone has three awesome references. Landlords say that they’re great, they were clean, they moved out and gave us notice and all that. They’re not a risky tenant to us at that point, right? They’ve proven to three people that they’ve been great. So I don’t need a whole month of security deposit and they need half a month, let’s say. So now they only have to bring me $400 for security deposit instead of the whole thing.

Miller:
And where it gets really interesting is if they provide zero rental references, that’s kind of a red flag. It’s like, do they really not have any history or do they have bad history and they don’t want to provide it? So in that case, we charge a higher security deposit. It’s like, you are a very risky resident to us. You have zero references, so we’re going to charge you 1.5 times or two times a monthly rent, whatever you decide. And that honestly screens out a lot of people automatically who would be bad residents because they have that poor history, and then they see that they don’t provide any references. So now they get that higher security deposit and they don’t want to pay 1200 bucks just for the security deposits. They move on and go find somewhere else to live. So I guess that’s one big tip there for how to get better people. In

Tony:
One follow up question to that, Miller, you’re doing a lot of screening upfront, which I’m sure helps prevent this, but I would assume that maybe there’s been a few bad actors, bad apples, not good fits that have maybe slipped through the cracks. Has that happened, and I guess what were the repercussions of that and how did you actually deal with that inside the house?

Miller:
Yeah, so there’s a couple of examples. So over the years we’ve had, I think close to 80 residents. So of that, I can only think of two incidents where I really had to step in. We were talking about at some point you do have to step in and take care of the preemptive, the proactive stuff won’t always help. So there’s a couple of things that have slipped through. One, we just got rid of this person three weeks ago. She was in our personal house hack, and my wife and her started having issues. So I’m getting really motivated to get this person out. My wife is on me about it, rightfully so, things were not going well, but it’s something that I messed up on the front end. I let her in when she did not meet certain criteria.

Miller:
I think it was credit score was the main thing, but I think her rental references were being weird or something like that. But anyway, I still let her in even though she didn’t meet a few things because, and this is a good lesson for the rookies, but moving from the first house hack to the second house hack, especially if you’re renting rooms, is actually really hard because we left the first house hack had two vacancies there. Now we’re gone. We’re not occupying the basement with the two rooms. Now we’re at the second one and we have four new rooms. It’s a lot of vacancy to take all on at one time. So I have all of these and I’m working on getting everything filled up, and I feel like I have to start compromising on the criteria in order to get it filled up. Instead, what we do now, if we bring a new house on, we’ll have six vacancies.

Miller:
Again, similar situation. What I do is just drop all the prices of everything by 20%, so then more people are in that funnel, and I can still pick people who are qualified. There’s just more of them to choose from. So I think that’s a better approach there. But yeah, so in that case, I compromised on some things and she was kind of rude. She was very rude. Ultimately, that’s not reason to kick them out, but there was some lease violations that we found that we could use, but we offered her just basically cash for keys to leave instead, so we wouldn’t have to do the eviction.

Ashley:
What was the amount that you did for cash? For keys?

Miller:
It was just like a hundred dollars or something. And actually she ended up not even really taking it

Ashley:
Well Worth it.

Miller:
Yeah, because really what I said, I was like, okay, can you be out in the next seven days? You don’t have to pay rent for those seven days. And she was like, no, I’ll just leave today. So it actually worked out super, super well. I was in Cancun when this happened for BP Con, so I was ecstatic that I was worried about it the whole time and it was over. So

Ashley:
Miller, I guess along those lines, that’s something that you’re having to do with your day-to-Day. Now that you’re not doing your W2 job, what are some of the other things that you’re actively doing now as a full-time investor? Give us kind of the insight of the day-to-day. Are you looking at new acquisitions? Is it all just tenant management?

Miller:
So in our case, we’re looking to continue scaling our portfolios. So a lot of time is spent on the management side optimizing things. We’ve had a few VAs that we’ve hired, a few virtual assistants try to help with this management stuff. And I think I’m not good at hiring yet, and I’m not good at managing yet. These are skills I really need to figure out. All quit. Everyone of ’em has quit, so now it’s back to me. So I’m optimizing some things and then going to focus on hiring, so I can let go of some of that. But the other portion of time is working on acquisitions. So we’re looking at more deals, looking at the parking, looking where we can build rooms, all that sort of stuff that I mentioned. At the same time, we’re looking for more money. So at this point we do buy with partners typically. So it’s a lot of networking. It’s a lot of following up. It’s a lot of phone calls and dinners and getting with people, all that stuff to kind of maintain and build relationships to purchase properties down the road.

Tony:
Yeah. Well, Miller, congratulations on the success that you’ve had so far in building this portfolio, and I think even more kudos to you for doing it in a way that was very like, Hey, we’re going to make sure that we have some systems and processes in place as we scale this thing up. Because I think Ash and I have both talked about this, where sometimes you scale so quickly that you kind of look down and there’s a big hole in the middle of the plane are like, oh, we got to fill this hole.

Ashley:
Or it’s all in your head and you have to stop and take the time and try to explain it to someone else how this is supposed to happen.

Tony:
So kudos to you for it, for kind of doing it the right way, I guess. Last question, Miller, before we let you go here. As the market evolves, as this model of co-living evolves, I guess, what are you seeing as maybe the future? What are some of the trends you’re keeping an eye on, or maybe even more importantly, what does a rookie need to keep in mind if they want to be successful with this strategy?

Miller:
Yeah, I mean, the biggest thing I think to keep in mind, especially as a rookie, is that if you’re going to house hack one of these, that is the absolute best way to get started financially. That makes sense in everything, but living in the property while you’re managing it is the best way to build your systems. Whenever we lived in that house and we had three roommates living up above us, I could literally, we’ve added the cleaner that was something new that we added, and I just go up there and ask them like, Hey, how is this? Do you like this? Do you not like it? How often do you think we need to do it? It’s like a super quick feedback loop, being able to just go upstairs and talk to them. So really nail all your systems down when you live there so that then when you move to the second one and you’re not physically in that one anymore, you have all those learnings, you have all those tips and tricks, you have the exact list of things that you need to follow to keep it running smoothly.

Ashley:
Well, Miller, thank you so much for joining us. We really appreciated having you on today, sharing the systems and processes you have in place, and also talking about co-living and how you’ve been able to implement it into your real estate investing journey. So, Miller, if people want to learn more about you, where can they reach out to you and find more information?

Miller:
Yeah, I’m actually writing a book about co-living right now. So if anyone was interested by this conversation and they want to learn how to rinse out rooms in a house hack or rent it out when you don’t live in them and do it in a way that you can actually scale the business and it’s not a huge management headache, then yeah, feel free to look me up on Instagram. It’s just my name, Miller McSwain, M-C-S-W-A-I-N, and if you want to shoot me a DM book, then I’ll send you, we have a link for, it’s coming out here soon, but we have a link for people to pre-sign up for it and get discounts and all that sort of stuff. So yeah, that would be great. I’d love to chat with anybody who wants to reach out over there.

Ashley:
Well, awesome. You didn’t add Author to your day-to-Day work when we talked about what you’re doing, but congratulations, that’s really exciting. I’m Ashley, and he’s Tony. Thank you so much for joining us on this week’s episode of Real Estate Rookie, and we’ll see you guys next time.