Robert Leonard  03:11

And was your first deal a brand new build? 

Todd Baldwin  03:14

It was, yeah. So my first deal was a new construction home. My wife and I occupied the master bedroom and we rented out the rest of the bedrooms to our college friends. We lived in that for nine months before buying our second house and then three months later, we bought our third house and then moving into the third and getting that owner occupied. 

Robert Leonard  03:32

So why did you get started with this strategy? Why didn’t you go with a more traditional strategy, like a flip or just even a traditional rental?

Todd Baldwin  03:39

Well, that’s a great question. Well, the beauty about House hacking is number one, I needed a place to live too. So my wife and I, who at the time was just my girlfriend, we were looking at renting a place in Seattle. And we saw that for a one bedroom, one bath, we were going to be all in probably $2,700 bucks a month, it was a little bit bigger a studio. And at the time, I had a six figure salary. And she was doing well. Also, you know, we were young 22 or 23. So I was very fortunate when I dropped out of school. 

Todd Baldwin  04:08

It’s like a sales job making six figures. But even we were like, This is ridiculous when that rent. So we started looking at houses to buy. And we saw that just outside the city limits in south of Seattle, we could build a brand new house for you know, a fraction of the cost that Seattle proper was and you know, just 20 minute bus ride from downtown to said to build a brand new house. But again, it was just me and my girlfriend, it was much way too much house for us. 

Todd Baldwin  04:35

And so we decided to rent out the bedrooms to my college buddies and we effectively lived for free in a brand new house that we owned. And to answer your question, the reason why we didn’t do a flip or you know traditional rental is we also needed a place to live. And this was kind of a double whammy of a way to make an investment live for free and also getting the real estate game. 

Robert Leonard  04:54

Yeah, it’s so interesting that it was such a new build for your first property because a lot of new investors would never or even consider a new build for their first property. Rightly so I would say, but so it’s interesting that you’ve had success that way. Do you only do these properties? And we’ll get more into your portfolio as the episode goes on. But do you only do these properties if you buy them first as a house hack, or are you buying properties and then renting them out just by the room? 

Todd Baldwin  05:19

So I’m buying properties to rent about the bedroom. I typically try to buy them owner occupied, because you get a better rate and you can come up with less less than 20% down. But so my first home we bought owner occupied. The second house we bought, we had to put 20% down, it was a single family home. We bought it specifically to rent up by the bedroom and that second house was a six bedroom, three bathroom house.

Todd Baldwin  05:41

In a matter of about five days, we had all six bedrooms leased out, and the cash flow. After all the expenses every month was right around, I think, between $2,500 and $2,700 a month. Immediately on that, you know, one single family home. That’s when we realized that there was a big business to this. And it’s funny because most people who invest in single family homes, the cashflow can be you know, just a couple $100 bucks. You know, we have one house close to the airport where the monthly profit on that thing is bringing in 4000. And it’s crazy.

Robert Leonard  06:11

Yeah, that’s very high for one single property that’s only a single family, not a multifamily that’s six, seven. You know, you could see that out of an eight to 10 unit property, but just a single unit that’s very high. When you are getting in to this strategy, did you study any specific resources? Or did it just kind of come about from happenstance? I know you mentioned you live there, and then you decided you want to rent out the bedrooms. Did you just kind of think of that on your own, or did you study specific resources? Or how did you learn about it in the first place? 

Todd Baldwin  06:39

It’s a great question. So you know, I read plenty of investing books. I’m really big. I’m a huge fan of Warren Buffett. I also like everything that Robert Kiyosaki has to say about assets and liabilities. But of course, my strategy is so unorthodox that there wasn’t really a road map to buy houses, specifically to rent them out by the bedroom. But what happened is, I had a terrible roommate in college. And then I lived alone for a while. I just kind of remember thinking about all the problems that arise with roommates. 

Todd Baldwin  07:09

And then when I got my sales job, I was making more money at the time and ever made. I think when I was 22, I was on pace to make somewhere around $110,000- $120,000. But I wanted to buy my own real estate. So I ended up renting a room in a house for like, just very cheap. I’m in this area. Now, the guy who owned the house, he just owned the house, and he was living there. He never bought houses to then rent, buy the rooms. He just used a divorced guy. 

Todd Baldwin  07:33

And he thought, well, maybe they’ll have roommates. So, I wanted to take what that was and make it a lot better. And so that was kind of the idea when we bought this house and my wife and I actually argue about whose idea it was. She thinks it was her idea and I think it was my idea. But uhm yeah, it is a unique strategy and to answer your question. No, there wasn’t a whole lot of mentorship or roadmap, if you will to get there, we just kind of have to figure it out.

Robert Leonard  07:58

It’s great that you mentioned Warren Buffett, because here at The Investors Podcast that we were founded on, we were founded on studying Warren Buffett. So I know the audience will really enjoy that and I think it’s interesting how you, you stumbled onto the house hacking, because that’s exactly what happened to me. I bought my first property and it was only two bedrooms. So it was nothing crazy. But I never went in that second bedroom, I tell the story about how I went probably two or three months without even opening the bedroom door. 

Robert Leonard  08:20

And I decided one day, I should probably do something with this. And I ended up renting it out for $700 or $750 a month and my mortgage was only $1100. So I was only living for like $400 bucks. I was like this is pretty great. I didn’t even know I could be a real estate investor. I never thought I could be a real estate investor. And that was just kind of how I got started. And that’s kind of spiraled to what it is today. So it’s interesting to hear that you had a similar situation. Do you think that this is a good strategy for a new investor to implement? And how can someone who’s new to real estate implement the strategy? 

Todd Baldwin  08:49

That’s a really good question. So the short answer is yes, absolutely. The longer more complicated answer is, it really depends on your market. I mean, I live in Seattle, where housing is so expensive, that people are happy to pay 900 bucks for a bedroom. You know, they’re they’re actually thrilled to add to put into perspective. We got our first tenants january first of 2016. And to today, you know, in 2020, across 35 rooms and six houses, we have never missed a month’s rent. 

Todd Baldwin  09:19

We’ve never missed a day’s rent. And because the demand is so unbelievably high. But yes, to people, even if you’re not in a crazy expensive market, it just goes back to you. You also have to have a place to live. So you’re either going to pay down your own mortgage, or you’re going to pay down somebody else’s. And if you buy a house, even if you don’t get 900 for the room, but you know you have a buddy that pays you 500 or 700 or whatever it is, I think it would behoove you to do that. 

Todd Baldwin  09:44

And of course if you have kids, you probably don’t want roommates and that you know kind of depends on your specific circumstance but I think buying a home for you to live in and then getting either reduced like you did a little over $400 for for free. Like I wasn’t my first or even now. Today, not only do I for free, I actually make $1,800 per month in a house that I live in. So I think it’s a brilliant strategy for anyone looking to get started. 

Robert Leonard  10:09

Now, what if you don’t want to live there? and you buy a rental, almost like you would a traditional, but rather than just renting it out to one family rented out by the bedroom? 

Todd Baldwin  10:16

Oh, absolutely, yeah, I do that all the time. We are to six properties now. And we have lived in three or four of them. So we basically live in for 12 months and then go to the next one. But so that means whether it’s two or three, I don’t even remember anymore. But two or three of them, we just bought as investments. As I mentioned, we have an eight bedroom, four bathroom house that we bought. And Specifically to rent that by the bedroom and that brings in right around $8,000 per month in gross rents. And after the principal interest tax insurance, after all the utilities that we paid for, we cashflow $4,000 per month. So it’s a phenomenal investment strategy.

Robert Leonard  10:51

I love how you live there first. I often give that advice to people is even if you don’t want to house hack, even if you want to buy a property and you don’t want to live with people or you don’t want to buy multifamily, you could buy a property a single family and then live there for a year and move out and then turn it into a rental that way, it’s not necessarily the most optimal approach, but you could still get a rental within a year for only three, three and a half 5% down whatever it may be. And that can be a great strategy. And you’re doing that you’re just supercharging it with a lot of other strategies that you could do that make it even better.

11:23

We take advantage of the owner occupied rates and the less you know less money down on my first property, I put three and a half percent down. And then we also had roommates to pay off the mortgage for us. It is like I’ll be fully transparent. It is kind of an acquired taste. And there are some things of course are annoying about having roommates, but we do the best we can to match your personality. I was featured on CNBC, I had no idea it would go viral, but it definitely did. And that was just wild. 

Todd Baldwin  11:48

I had so many people messaged me asking how do you stomach living with roommates. And what I told them was like, “Look, that’s how I became a millionaire at 25,” was when I was 22, or 23, I made the decision to buy real estate live with roommates, live completely for free and keep investing. And it only took me three years for my network to cross $1.2 million. And so for me, it was well worth it. I’m 28 now. We’re not going to live with roommates forever. 

Robert Leonard  12:14

In fact, the month of August, which I don’t want to, I don’t know what’s coming out but that’s not too far from us. I’m recording this, I’m not gonna have any roommates moving forward. And you know, they moved out in July. So now I’m 28. I don’t have to live with roommates anymore. I collect about you know, $40,000 per month in rent. And it’s all because we just kind of slow played it with this roommate strategy. And it worked out great. 

Robert Leonard  12:38

Yeah, I’m so glad that we’re having this conversation because I tell this exact same strategy on the show all the time. But I’ve never had an exact concrete example to give of somebody who’s actually done it because I haven’t fully done it myself. I’ve done parts of it here and there. But I’ve studied it a lot. So I know it does work. And so I’m super excited to have you here and be having this conversation. I know people are going to get a lot of value out of it. 

Robert Leonard  12:58

Does it have to be a super expensive market? Does it have to be like Seattle? Or could it be middle market and be not necessarily the Midwest, so it’s not cheap, but it’s also not high end like New York or San Francisco or even Seattle? 

Todd Baldwin  13:10

That’s a great question. So I personally, I only own properties in Seattle. I’m not married to Seattle by any means I will actually be investing in the Midwest when I buy apartment buildings. But I can only speak to what I’ve personally done. However, I think this could work anywhere. When I talk about the expensive market and how that helps, Its people are, are not only willing to but excited to live with roommates if it means they’re going to save $1,000 or $1,500 bucks a month in rent. 

Todd Baldwin  13:38

So in the Midwest or in the south where if you can find a really nice apartment for $745, then it maybe you don’t want to go live with roommates or you know or share a house. So I think the expensive market does help, but at the end of the day, you have to live in a home and I’m sure you probably have a couple of buddies that would like to pay less rent wherever you are. And if they just, you know, they live with you or for you more than not have related want to just buy a place. There are always people looking to save money on rent. And if you spice it up by the home this less rent for them but it’s way the market for you. So it really is a win win.

Robert Leonard  14:14

I can’t help but sit here and smile and almost laugh a little bit because almost every strategy in real estate that we’ve talked about doesn’t work as well in expensive markets. And then we were talking about this strategy and we’re saying probably does better inexpensive markets and I mean that’s illustrated by the rents that you’re able to demand in her bedroom because you said you’re getting about 900 on average which to me is kind of crazy because my rentals in Texas, we get $950 a month for a full three bed, two bath house with a garage, very nice yard all fenced in. 

Robert Leonard  14:44

Great school district. Great neighborhood and we’re only getting $950 bucks a month so it’s, you know it’s kind of crazy to hear that you’re able to demand those rents on a, on a one bedroom.

Todd Baldwin  14:53

It is wild and you know part of it is because Seattle is just so the average income is so high here because we have Amazon and Starbucks. Expedia is coming. And Microsoft is like 20 minutes away in a town called Redmond but it’s, a yes. Anyone it’s really close to Seattle. Because of that, pricing of houses and apartments has skyrocketed. And so people that don’t work in tech, basically that don’t have this huge figure salaries are moving to the outskirts of Seattle. And that’s where I’m buying. 

Todd Baldwin  15:22

It’s the most ripe for appreciation. And it’s cheaper too. It’s you know, I bought my first house for $506,000, which may seem like a lot of money. But had I bought that same house 20 minutes north, that easily would have been 1.2 million. Yeah, I have, you know, I have some people paying $900. For master bedrooms, we get $1,300 for a master bedroom which is more than some apartments in some areas, like you’re saying in Texas. So, yeah, this, it does work incredibly well in an expensive area. 

Todd Baldwin  15:50

And specifically, I try to buy an undervalued neighborhoods in that area that are going through a transition. So in just four and a half years, we’ve also realized about $700 grand in appreciation. That’s without doing any sort of renovation because they’re all new builds. We had kind of this this sweet spot, if you will.

Robert Leonard  16:07

You mentioned a few minutes ago that you bought a property that was I believe, eight bedrooms and four baths. So when I hear that, do you have any concerns? Or have you thought about what’s going to be on the back end? If and when you decide to sell this? And the reason I asked that is because it’s a single family home, and so is there really a big market for people? And maybe Seattle is different? But is there really a big market for people that want to buy an eight bedroom house with four bathrooms? 

Robert Leonard  16:31

That I mean, sure, probably the wealthier demographic could purchase that. But is it really going to sell well, at that point? Or do you have to find somebody that’s doing a similar strategy to what you’re doing?

Todd Baldwin  16:41

So yeah, that’s a really good question. So you’re right, eight bedroom, four bathroom home is kind of odd for a family, for sure. So if we were ever to go sell it, we probably advertise it as like, you know, six bedrooms and two bonus rooms, or you know, an extra family room or something like that, or like a game room, we could put a billiards table. But I’ve had so many people after I was on bigger pockets kind of about my strategy, they want to get into it too. 

Todd Baldwin  17:06

I don’t see any hardships with if I didn’t want to get out from under it, I could probably sell it to someone who wants to start a house hacking business. And it’s so lucrative and their cash flow. So great. So whether it’s to a family to another house hacker, I don’t really see a problem. The other thing I could do is if I ever want to get rid of these properties, I might 1031 exchange in an apartment building. So I have a few exit strategies but it wasn’t a huge concern for me, but I totally get it. Yeah, most families don’t want or need eight bedrooms.

Robert Leonard  17:35

It’s interesting that you’re talking about taking two bedrooms away, you know, it’s legally an eight bedroom. But in order to get it in a more competitive market where people might be interested in it, you’re actually talking about taking bedrooms away. And that’s the exact opposite of what you hear a lot of people do. Everybody’s looking to add bedrooms usually. 

Todd Baldwin  17:50

Yeah, I mean, we could just say, “Hey, you have a, it’s a six bedroom house with a home office and a media room.” or you know, whatever it is. So yeah, there’s options there. 

Robert Leonard  17:58

That sounds brilliant to me if it fits your market, right? If I mean, if that’s what people want, that sounds like a very good idea. Do you have issues with comps at that level of bedrooms? Because obviously, it’s a single family property. So it’s being valued based on comps, rather than a multifamily over five units that would be valued on cap rates, and other income, you know, net operating income? So do you have issues with comps at that many bedrooms? 

Robert Leonard  18:23

Well, I’ve never sold a house before I’ve only bought them. And when you’re on the buying side, it’s actually phenomenal, because you’re buying it as a single family home. So like, for example, the home that we’re been talking about this eight bedroom, four bath, if I bought it for $634,000, which in Seattle is not crazy, you know, definitely not crazy. But I’m getting about $8,000 per month in rent. And if I were to rent that house out to a family, I probably get between $2,800 and $3,000 grand per month. 

Todd Baldwin  18:55

So I was basically able to buy something that technically yes, was that market for a single family home? but I’m getting so much above market in my rent. So it actually works out phenomenal for me because my mortgage, the way it works out, you know, I mentioned before, is $4,000 bucks a month in pure cash flow on just one house. I mean, that’s you look at the average income in America. It’s like 50 grand, I’m getting 50 grand passively every year from one single family home.  You can’t beat that in a lot of areas. So we’re very happy with it. 

Robert Leonard  19:26

Plus the appreciation and all the tax benefits that you’re getting? 

Todd Baldwin  19:30

Oh, yeah. So let me the way it works out is you know, so we bring him in right around $40,000 per month, little less than $40,000. It comes out to about $13,000 grand per month is pure cash flow and we do pay for all utilities. We have housecleaner go through every single house on weekly basis that’s after all of that. So, we make over $150,000 grand and a passive income and we pay zero taxes on it because it right appreciation schedule. 

Todd Baldwin  19:51

Actually the first quarter million bucks that we make is completely tax free. So that’s just another benefit of real estate is I can’t think of anything else in the world that goes up in value, while you can legally say it goes down in value for tax purposes.

Robert Leonard  20:05

Yeah, that’s always been an interesting dynamic and one that’s amazing about real estate. How did you, and maybe this wasn’t an issue for you, but for a lot of people, I think it is. And it was for me, how do you overcome the issue of buying a property that you’re gonna have a two or $3,000 mortgage payment on? You know, especially as your first property. You’re earning a six figure salary, so you could probably cover it if you had to, but I mean, you’re looking to do something so you’d get your mortgage payment down, or your or your living costs down. 

Robert Leonard  20:31

So how do you stomach something like that, you know, people are probably gonna be worried that they’re gonna buy a property and may not be able to rent out the bedrooms. So how do you stomach buying something like that, and then potentially having to be stuck with that mortgage payment? 

Todd Baldwin  20:44

Great question. So it goes back to when we were looking at an apartment to buy. Even an apartment that was just a one bedroom, one bath that was going for, like $2,700 bucks. And that wasn’t a ton of space, it was, you know, eight or 900 square feet. So the $3,000 mark was already so close for us, it was just gonna be a rental anyway. So we’re like, well, we might as well be, we have mortgage instead of renting. I think it’s, it did help. 

Todd Baldwin  21:08

And you’re missing it and say the demand is just so high, we had no fear whatsoever that we would be able to rent rooms to cover the mortgage. And even if we didn’t, we’d be spending this relatively the same amount anyway, on an apartment or close to it. But I mean, the market in Seattle is so hot, we actually had, I did a YouTube video on this a few months back, where Seattle was the number one city for millennials as far as net migration. 

Todd Baldwin  21:34

So that means like, the number of millennials that moved out from it, a number of millennials, we’ve been that net increase was higher than any other city in the country. And as a default, most of my tenants are young people, because only young people, one of you are okay with living with four or five people. So it’s just such a hot market over here that yeah, there’s really I never ended. This is just my, you know, maybe an arrogance, I don’t know. I’ve never once had a fear of being able to rent a room. 

Todd Baldwin  22:00

And again, we’ve never had a vacancy, I’ve literally moved people out in the morning. And then send cleaners through use of touch up paint and move somebody else out in the afternoon. In fact, today, when we’re recording this podcast, I went over at 7am helps a girl move out and I have a new girl moving into that exact same room today at 6pm.

Robert Leonard  22:19

Did you do any sort of analysis before you looked into this? I know, obviously, there’s demographic trends. And there’s a lot of news headlines and things like that, that you can read. But did you do any research and say, This is what I can get for this bedroom? This is what I think I’ll be able to get for this bedroom, so on and so forth. And I feel confident in these numbers?

Todd Baldwin  22:38

I did. Yeah. So what I did was I sort of just looked at the price of studios. And so what that was, and I knew I needed to be less than the studios and actually significantly less to be worth it to live with roommates. But the house that I buy are so big, between six and eight bedrooms, that even though I’m charging less per bedroom, I have so much volume that the cash flow still works. And then also what I did was I just kind of looked at my wife and I were in a very privileged position where I had a six figure base salary. 

Todd Baldwin  23:04

And I was so making huge commissions from my sales job. I mean, I was home with a commission check one day over $30,000. So we had this really high income, and we still didn’t want to go spend 2700 bucks a month in rent. Well, if you’re making 60 grand or 40, grand or 80, grand, whatever, anything less than what we’re making, you also don’t want to spend 27 hours a month in rent. So then we compare it to other options and studios. And we wanted to price it relatively high to attract higher quality tenants. 

Todd Baldwin  23:31

So we started including things like we have a housekeeper come through and clean every single house and we have pest control every three months. And we supply all of the toilet paper and paper towels and hands up and dish soap just because if you’re always buying us f&b your roommates using it up eventually that’s going to irritate you. So we feel that we provide a premium product as far as the room rental space goes. 

Todd Baldwin  23:53

Like I don’t think there’s any room rental that is doing even close to what we’re doing exists, that’d be one thing we even have to do exists, all of our furniture is really nice furniture. The houses are brand new, all utilities included, we haven’t made. So we just try to do the best we possibly can. We’re able to kind of dominate the market that way. 

Robert Leonard  24:12

So I want to dive into how you analyze real estate deals even more or these specific types of deals. My favorite part about real estate investing is actually analyzing the deals. I’m a numbers guy. I’m an accountant by trade. That’s kind of where my specialty is. I even teach a live class that teaches people how to analyze real estate deals. But I don’t spend much time analyzing rent by the room properties, mostly just traditional rentals and house hacks. So if you could walk us through how you analyze one of these deals before you buy it. 

Todd Baldwin  24:42

So the good thing going for me is because they’re all single family not multifamily, they’re priced according to market. So their price for either someone to live there or to rent out for you know, $2,500 bucks or $3,000 per month. That’s in my favor. When I look at each bedroom, what I really look for is a good bedroom to bathroom ratio. I don’t want any more than four people sharing one bathroom. And even that’s a lot. But in our eight bedroom, four bathroom house, that means, you know, there’s two people to a bathroom. 

Todd Baldwin  25:09

So that’s really good. And then I just sort of like, look at what do studios in the area go for? And can I come in at half of what a studio is? And if I can, and the numbers were gotten to make sense, that’s what I price kind of the smaller bedrooms for. And then the larger bedrooms are the ones that come with the garage spot, or you know, private bathroom, those a little bit more expensive. The numbers are so like, I mean, as I mentioned, I’m getting a 100% cash on cash return my first deal. 

Todd Baldwin  25:37

And the way that works out is we put $90,000 down, and we get a cash flow of $25,000 per year in pure profit. So it’s actually been over 100%, some people are trying to get like a 10% return or 8% return. And heck, we’re getting over 100. So it’s even if it was half that a 50% return, that’s still phenomenal. All of these are I agree, they’re very fun to analyze. And my wife is actually an accountant, too. So it’s small world.

Robert Leonard  26:02

A little ashamed to say, but I’m targeting 15% returns. And I’m happy about that, you know, I mean, I got a 37% return property consistently. But even that I mean, that doesn’t compare to 100%. There’s very big difference there in those numbers. I want to now walk through a specific deal of yours. Do you have one that we could walk through? 

Todd Baldwin  26:22

Yeah, for sure. 

Robert Leonard  26:24

Alright, so how much was it? What kind of property is it? And where is it located?

Todd Baldwin  26:30

Probably the woman I’m living in right now. It’s $900,000 it was bought for. It is a duplex and is located about 15 minutes outside of downtown Seattle.

Robert Leonard  26:40

And what do the numbers look like on this? What was the downpayment and what is the monthly cash flow? 

Robert Leonard  26:45

So I had to put, I believe, $150,000 down. my monthly cash flow on this one is a little bit lower, because now I live here with no roommates. But the castle is about 1800 bucks a month. If I had roommates again, it would be more than that.

Robert Leonard  27:00

And so what is your plan with this property? Are you were you renting it out by the room even though it’s a duplex? So did you rent out the other duplex by the room and then also the property that you live in was out by the room?

Todd Baldwin  27:10

Yeah, so how it started is my wife and I lived in one half, and we rented out the other bedrooms in our half. And then the second half the duplex, you actually have that on Airbnb. And then we converted one of the garages into a studio had an Airbnb as well, those were killing it. We had, I think 105 star reviews on our Airbnb, the money was insane. And then of course the Coronavirus pandemic happened, and people stopped traveling. So we made the pivot to instead lease out the second half duplex to a couple. 

Todd Baldwin  27:40

We’re now getting $2,200 a month for that half. And we leased out the garage studio full time to use an individual guide reading $1,200 for that unit. But before in the summer, we were going to get closer to $6,000 per month on Airbnb for the second half of duplex. So, much less but once these leases expire, assuming the current event, assuming the COVID pandemic, are we behind this, hopefully we’ll try to put that back on Airbnb. 

Robert Leonard  28:04

And so you mentioned that you went to help out an individual move earlier. So are you self managing all of your units, not just the ones that you live in?

Todd Baldwin  28:12

Yes, sir. So I manage everything. And I help this individual move out. She’s just a single female, and she had a lot of heavy furniture. So I wanted to go and help her out. It also helps me because if I can ensure that she gets out in a timely fashion, I can help the next person move in or at least given their case, or they can occupy immediately. So I don’t want any delays. This is part of the reason why we’ve had no delays in rent either, as I’m very proactive to help people move in and out. 

Robert Leonard  28:38

Are you still working your corporate job while you’re doing all of this? 

Todd Baldwin  28:40

I did take some time off actually. So I took some time off from my sales job to really focus on the Airbnb strategy, which that’s how it built up to be so big and take it offline after the pandemic. But I probably will go back to my sales job in January or working in the sales arena. But for now, I’ll probably rest for this year. I’m just gonna focus on real estate and also YouTube and Instagram, trying to build a platform to teach people what I’m doing as well. 

Robert Leonard  29:08

And so if you’re able to go back to your sales job, the rentals must not be taking up a ton of your time if you plan on being able to work full time and still do all the real estate business assuming that you’re going to continue to manage yourself?

Todd Baldwin  29:19

Yeah, exactly. So the Airbnb was taking up a lot of time, but the regular room rentals do not take up that much time. I you know, there, there are some days where I will work 12 hours for an entire day. But then the other times, I don’t want to have anything to do for like three months. So how it averages out is probably about five hours a week ish of actual work on my room rental business.

Robert Leonard  29:40

And you mentioned a couple things earlier that we kind of just went past and I want to go back and I want to talk about that because I think it’s going to help partially answer my next question, which is how do you manage so many individual tenants and roommates essentially, efficiently and the time period that you just mentioned, that doesn’t sound like a lot of time. So tell us a little bit more about those strategies that you’re using you talk about how you have a maid and how you provide toiletries and all those different things. Tell us a little bit more about that. 

Todd Baldwin  30:03

So first, we have one oll female house, we have one all male house, and we have four mixed houses. So if you have a preference, then we have some options for you. The maid comes every single week, and she scrubs, the toilets, showers, she’ll clean the oven, the microwave, vacuum, all that stuff. We did that because the number one fight that roommates have is mess. So we wanted to eliminate that right away. The second thing we did was we decided to supply all of the toiletries. It pretty much except for laundry soap and shampoo and stuff.

Todd Baldwin  30:34

And that is because we just didn’t want anyone to go out and buy it. And the roommates use it up and and have it be unequal there. That’s another thing that people will fight about. So we just resolve that. And then the pest control is included. So no bugs get inside, we cover all utilities. So we have the premium cable package with you know, the best internet, the highest data plan all the premium channels, we have a house Netflix accounts or house Hulu accounts. 

Todd Baldwin  30:57

So pretty much everyone just has to pay one single payment every month, until nobody’s dividing the pizza at the end of the month, we also do our best to match by personality. It’s not an exact science. But if someone applies to a house that I own, and based on our conversation, I know that they would be a better fit for a different house, I’ll show them the one that they apply to, but also say, “Hey, just so you know, I have a spot right down the street based on the roommates living there, I think it’d be a really good fit for this house instead, do you want to check take a look at that too?” And most people really appreciate that because they don’t want to be unhappy with our living. So harmony in the house is huge. What we’re trying to do here.

Robert Leonard  31:34

I think it’s so interesting that you offer all of those different services and products and different things to your tenants, because I’m sure that all of that combined isn’t super cheap. And that’s just cash flow. It’s coming out of your pocket. I mean, in reality, you could probably still have all those rooms rented out without offering those services. So why are you doing that? I’m guessing it’s to reduce turnover, reduce issues, and that allows you to actually have a better business. But I think a lot of people would just look at the bottom line and say, “Hey, I need to cut cost everywhere possible to make sure my cash flows as high as I can.” So how are you combating that? 

Todd Baldwin  32:05

Great question. So the first thing is our cash flows already 13 grand a month that we’re making passively. So it’s awkward hurting for anything. The second thing is, I believe you’re right. I think we could have all the rooms leased out, but maybe for not as high. We charge a premium for each bedroom. But people like all this expensive room, but also it doesn’t make every single week. And you know, man $1,300 or master bedroom is kind of a lot, but I never have to buy toilet paper, paper towels, and all utilities are included and we have HBO. 

Todd Baldwin  32:33

So, I do it in part to sort of like, I want to make sure that the high price point is justified. I want a high price point because I feel that it helps attract just like a more professional, higher quality tenants. You know, this may seem controversial, but we have a no smoking policy in our houses. Because some people have headaches, it’ll ruin the furniture, all that stuff. And if you just kind of look at who smokes, it’s like man, 75% of all smokers are low income. 

Todd Baldwin  33:03

So we decided, well, we’re going to have high end stuff that will press that riffraff out of the market. And that may seem controversial, or whatever word you want to use. But for us, it protects your assets so much. We probably could slash a few things here and there. But we do want long term tenants. We want a good reputation in the area. So you have a very tight knit community. I don’t want to be known as a slumlord, or just you know, some guy that is, is milking it. 

Todd Baldwin  33:29

I don’t think of any of my tenants as tenants actually. I think of them all as clients. It really helps. Sometimes we’ll we’ll host parties for and then we’ll have game night and we’ll order a pizza. Or we’ll take all of our tenants. So we’ll get them together and we’ll all go mini golfing, or we’ll go to the batting cages, or have a picnic, we host all of it. And it’s just a way to sort of get that community engagement. Because a lot of people have terrible bosses or terrible landlords and we just don’t want to resemble that at all.

Robert Leonard  33:58

How much of this do you think is impacted by your sales job? When I hear you taking them out their quote unquote, clients, you taking them out for all these different outings and doing these different building activities? How much of that do you think is driven by your career in sales?

Todd Baldwin  34:11

Probably like 100% of it. Imagine, I mean, my job, you know, like, from an early age was to go out and schmooze people, basically, you know, to wine and dine them into and to get them on board and to get them to like you. And I’m not going to have to be best friends with my clients or my tenants. But it helps when they like you. Is that fine line between like and respect. And so, we took all of our tenants, I skated one day, we just got a bunch of houses together and to go ice skating. 

Todd Baldwin  34:38

Yes, it was an expense to us. And yes, it did get into our cash flow. But we’re making so much money now in rents and appreciation and everything that it’s like, I don’t think we would be where we are at now if we were just trying to do the bare bones just squeeze every dime out of our tenants. I think the fact that we provide these services helps them to stay longer and also Just give us a good reputation in the marketplace. 

Robert Leonard  35:02

Well, vacancy is just so expensive. And if you didn’t provide these services, and somebody decided they didn’t want to be there anymore, because they were having a good experience, they’re interested in one bedroom and the average price bedroom, not even a master. There’s $900 down the drain. And I’m sure you’re not spending $900 a month on ice skating or mini golfing. So.. 

Todd Baldwin  35:20

No way. Yeah, we had, before the Coronavirus pandemic happened, we had a party with a taco bar. And so we got a catered from this really nice Mexican restaurant. And we had drinks and tacos and all these wonderful things, you know, all of our tenants and different houses came, that was $200 bucks, it was such a cheap thing. And everyone’s paying us, you know, $900 or $300 a month it was it was such an easy thing for us to do. The other day we made, we made quarantine baskets for attendance, where we put food and wine and all these things in these little baskets, we dropped them off at each house. That was nothing It was like, it’s very little effort and very little money. But to them, it meant so much to them, you know, like it was, it was a thing like this thoughtful thing, “oh my gosh, my landlord is bringing me this quarantine basket just to stay inside and it sucks.” So we’re like, “Here’s some popcorn, and here’s the movie list”, and all these things. So I think people really do appreciate it. 

Robert Leonard  36:10

Even if just one of those that leads to one tenant not leaving as early as they were gonna, theirs pays for itself really in just by reducing vacancy.

Todd Baldwin  36:19

One, we’ve had so many referrals too. We started off doing just advertising on social media. Not paying for it. But just you know, posting on Facebook and Instagram, I have a few tenants that we’ve got that way and in practice, of course. But now a lot of our businesses are people that actually live in one of our houses, and they have a friend looking for a room to rent. And they’re like, “Hey, come here. It’s awesome.” 

Todd Baldwin  36:39

And to the point that we’ve actually had people that move out, and then end up moving back, we’ve had four or five people that have moved out to live with a boyfriend or a girlfriend for decided they wanted to get their own apartment and friends living alone. We’ve had four or five people move back into our houses, because it’s hard to beat. 

Robert Leonard  36:57

Do you offer all of these same products, services, all these features of your places when you live in the property to? 

Todd Baldwin  37:05

I do yes, yeah. So whether we live there or not, it has all the same features. Still hasn’t same housekeeper. Same pest control company. So no matter what room you choose, no matter what house you choose, all the same utility packages included. 

Robert Leonard  37:20

And so how do you keep the separation between you being the landlord and you being their friend? And how do you deal with them, making sure that they pay you on time and not take advantage of you and not pay late? And just all of the different things that can come from being a friend versus being a landlord and running it like a business? It sounds like you run it like a business, but how do you keep that relationship that line drawn in the sand? 

Todd Baldwin  37:39

That’s a great question. So I think there are sort of two ways that a landlord or a boss or a leader of any sort can sort of have respect for authority. And one is like kind of, you know, your you respect that fear, like oh, if I don’t do this, I’m going to get in trouble. Like if I don’t pay on time, it’s gonna be a late fee. And the other way is, you’re likeable. So I don’t want to pay late because I like this guy. And the perfect blend is when you can have both. And I would say I’ve done a relatively good job and trying to get people to both like me and respect me. 

Todd Baldwin  38:12

Now not everybody wants to be their landlords rent, I totally get that. And I’m not looking to be friends with my tenants. When I’m looking to be friendly with my tenants. And being transparent, I do have people pay late and I do charge a late fee for that. There are some scenarios where no late fees are charged like during the Coronavirus office not turning into late fees there because people’s jobs are up in the air. But luckily knock on wood fingers crossed, we have not lost any money, this entire pandemic. 

Todd Baldwin  38:38

I had a young woman who, you know, gosh, several months ago, her father passed away. And she texted me and she was like, “Hey, I’m so sorry, I’m going to be late this month. You know my work where late fee is I have to fly to California for my dad’s funeral. And I can’t pay for the flight and also pay rent on time.” And I was like, of course you’re not going to pay me lately. Go be with your family, go to the funeral and take care yourself and and just pay rent when you can that will be no fee for someone loses a job or something like that. 

Todd Baldwin  39:05

I don’t charge any late fees. The only time I actually hold them accountable to a late fee is like if they text me and sometimes I do this or like, “Hey, I spent too much at the bar last weekend. So I’m going to pay rent on the 10th instead of the first” I’m like okay, think about late fee. But you know if it’s an actual problem, I’m not here to nickel and dime anyone you know, I want them to enjoy living here. And we’re all people and you know, we’re all human just treat each other with respect and decency.

Robert Leonard  39:28

Yeah, it’s funny that you’re based in Seattle because Amazon’s there and I’m thinking, how you run your business as a customer centric, essentially business, which is what Amazon is known for. Jeff Bezos founded Amazon, under the mission of being the world’s most customer centric company. It sounds like you’re taking after Amazon, Seattle’s probably largest company, doing something similar with your own rental business, I think is really, really interesting. 

Robert Leonard  39:50

How do you maintain the peace between the tenants? I know you’re doing a lot in terms of the services to help mitigate some of the risk of them fighting but like what if there is a conflict? How do you handle that? Do you even get involved with that? Do you let them figure it out on their own? 

Todd Baldwin  40:02

I get involved, if I’m asked to most of the time, if there’s a dispute, they can handle it themselves. Another thing we do is, every house has a second fridge, everybody has it labeled cabinets, and with their name on it, or they have a pantry shelf with their name on it. So space is, is divided up pretty evenly. But sometimes people just don’t get along. And when that happens, I usually offer to come in. And maybe that means somebody is moving to a different house. 

Todd Baldwin  40:27

Or maybe we have had it a couple times where I probably had four or five people that we kind of had a heart to heart. And it was like, “Look, I don’t think you’re the type of person that can live with roommates just the way you are.” They admit it, you know that they actually read it first or like, “Look, you know, this bugs me, and that bugs me.” And it’s like, but those are things that are going to happen when you live with people. And so when that happens, usually what I do is I offered to list their room. And as soon as I find someone they can take off and they’ll get their own apartment, and I’ll rent the room up somebody else who is more suited for a shared living situation, but it does happen. 

Robert Leonard  41:02

And how do you handle pets in your properties? I think I have a good idea as to what you’re probably going to say. But how do you handle pet. I don’t allow any

Todd Baldwin  41:08

pets of any kind actually. And that’s because there’s a few reasons. Number one, all the houses are new construction, they have nice floors and pesky traffic the floors. Number two, all of our furniture is very high in furniture from Macy’s furniture Gallery, and we have a warranty on all of it. And having a pet in the house voids the warranty. So right now if a couch gets destroyed, we get that replaced for free. As soon as a dog walks in and sits on the couch, that warranty is done. 

Todd Baldwin  41:33

And the last reason that some people are allergic, I had a young woman messaged me about a room to rent. And she’s like, “Hey, I see your ad says no pets. But I have an emotional support animal. It’s this cat that I have. And it’s legally not a pet. And you know, you can’t legally deny me. I’m having my emotional support animal.” And I responded with the truth, which was “Hey, I agree this emotional support animal is your is your emotional support animal.” That’s a legitimate thing. 

Todd Baldwin  41:59

However, one of the guys in this house is severely allergic to cats. It’s completely true. He works for NASA, actually really smart guy. But he’s like definitely allergic to cats. And for that reason, that trumps this other person who has some motion for pet. And immediately she agreed right away. She’s like, okay, yeah, that makes sense. If this guy could die, when I feed my cat inside, then this isn’t a good day. And that happens. A few houses were similar to cats and dogs. 

Todd Baldwin  42:25

And then for that reason we even emotional support that thing we get away with not allowing that. But people are pretty reasonable. You know, like, if you have roommates that don’t like animals, you don’t want to live there with your dog and people gonna hate your dog. 

Robert Leonard  42:38

Yeah, that’s what I was thinking is, it’s not even being allergic. That aside is like if you’re all sharing common space, if you’re sitting in the living room watching TV, and somebody’s dog runs up and jumps on you, which you can’t really control. I mean, you could try to keep them in your bedroom. But that’s going to be difficult with a pet. So it just makes for a hard living situation. And you talked about how strong the demand is. So I’m assuming it’s going to be an issue. But I wonder if not allowing pets reduces the demand that you could potentially have, if you had pets? 

Todd Baldwin  43:03

There are definitely people that hit me up all the time, they see my ads, and they’re like, Hey, this looks so great. But I do have a very small Chihuahua, it’s well behaved or whatever. I’m just very firm. I’m like, I can’t do it. I appreciate you reaching out. But I can’t do pets of any kind. It’s because it’s a short lived situation. And some people just don’t like animals, some people are allergic, they just wouldn’t be a good fit there for no one really fights me on that. 

Robert Leonard  43:26

And I’m definitely by no means discrimination attorney or lawyer or anything along those lines. But I thought I had heard or read somewhere that different types of properties don’t have the same discrimination laws. So I thought something along the lines of if people are living together, you’re allowed to consider different things like emotional support pets, especially if somebody is allergic.

Todd Baldwin  43:47

So again, I’m an attorney of any kind. And I do not advocate that anyone discriminate. What I will say is, when you’re looking for a roommate, instead of a tenant, you can put in some criteria that you couldn’t otherwise put in like, for example, I mentioned earlier, I have an all female house. So if a man applies to that house, I can tell him no. Where you know, if it’s an apartment building or whatever, you can’t disallow someone based on sex, and you shouldn’t. 

Todd Baldwin  44:12

But in this scenario, where it’s a group of young women living together, they’re doing that because they’re not comfortable in with men. If I have some creepy guy that wants to live there, I can tell him no, especially when I live there, too. It’s like if I live in a house, and I don’t want, it’s my house, like I’m renting a room out in my house, but you’re going to be my roommate, I can pretty much say like, “Hey, no cats, no dogs, no fish,” even if I’m not allergic, it’s my house. If you don’t want to live there, that’s fine. 

Todd Baldwin  44:37

There is some benefits, we get kind of a pass but again, not pretty of any kind. And I wouldn’t recommend that anyone discriminate on age, sex race or anything like that. So keep that in mind, obviously. But yeah, we have room rentals. Most of the people are going to be young. And if you have some women particularly that want to own them with women, then we have that option and it makes it so it just kind of less threatening to them.

Robert Leonard  45:00

Yeah, I completely agree. And we’re not having this conversation to try to find a loophole to discriminate. We’re, you’re doing it to, to run the best business that you can and make it the best situation for everyone involved, right? I mean, you’re not doing it to just disallow certain people, you’re doing it so that everybody in the house gets along. And it just the best situation for everybody that’s partaking in the property. So I think that’s important to point out as well. 

Robert Leonard  45:21

So for someone listening to the show today that’s interested in the strategy, what are the biggest things to look out for? What are some of the most common things you see people overlook when they’re implementing this strategy? 

Todd Baldwin  45:32

I would say, if your strategy is going to be drummed up by the bedroom, do not buy a house that has an HOA because many HOA disallow rentals or they have at least a limit on how many units can be rented. Or at the very least, they have a limit on how many cars can be parked in the driveway. And if you’re going to have six people living in a house, you need six parking spots, which actually brings me to tip number two, find a house great parking, and none of my rentals and my tenants have to street Park, I have enough parking for every single bedroom. 

Todd Baldwin  46:01

So that eight bedroom house, we have nine parking spots there, nobody has to street Park, the next thing would be find a property with a very, very good bedroom two bathroom ratio, you do not want a seven bedroom, one bathroom house, that will not work. So you want to make sure that you have enough bathrooms to support that model. And then sort of the next thing that this is just a personal preference. 

Todd Baldwin  46:21

I personally for this model, I wouldn’t buy a townhome that’s attached to another house, I would want to buy either the entire building or just you know, one single family home but I wouldn’t be interested in buying like one unit of a condo complex. To do this, I would want to add one my own space, my own yard and my own land. 

Robert Leonard  46:41

And so for some people that are wondering, what is that right bedroom, to bathroom ratio?

Todd Baldwin  46:45

So the first house we ever bought was six bedrooms, four bathrooms, I think that is pretty perfect. If you come across a house that’s you know, five bedroom, five bathroom, or six bedroom, six bathroom, so everybody hasn’t had a bathroom. That’s also pretty awesome. But a six bedroom four bathroom house is right on the money. I think that’s a pretty darn good setup.

Robert Leonard  47:04

I know that this conversation and some of the other podcasts that you’ve been on specifically, the bigger pockets, one has gotten me interested in the strategy. I actually plan on looking for properties like this. Now I’m finishing up a house hack. I live in flip, and I’m looking for my next property to live in. And I think that this is going to be something that I very highly consider. And I know people listening to the show today are going to really enjoy it and want to connect with you further. So where’s the best place for them to go?

Todd Baldwin  47:27

You guys want to DM me on Instagram. It’s just at Todd J. Baldwin. And then I recently started a YouTube channel. It just my name just Tod Baldwin. And you can find me on there. And I teach house hacking on YouTube. Pretty much anything to do with financial literacy, but mostly house hacking. And I just upload videos that anyone can watch at any time. And learn the strategy is there any questions feel free to reach  out and I hope we will get them for you.

Robert Leonard  47:50

Todd, thanks so much for coming on the show. I’ve really enjoyed our conversation and I look forward to staying in touch. 

Todd Baldwin  47:56

Awesome. Thank you for having me on. It was a pleasure to be here.

Robert Leonard  47:59

Alright guys, that’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro  48:05

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