May 28, 2019

JF1728: Natural Entrepreneur Quits All Businesses For Real Estate Investing with Dustin Heiner

Dustin had a few different businesses as he was figuring out his path. Once he came across real estate investing, he found his last business. He stopped all the other businesses, which he says required more work and made less money than real estate investing. Now a successful investor, Dustin is also helping others build their own real estate investing businesses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“We’re investing for the long term” – Dustin Heiner


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Dustin Heiner. How are you doing, Dustin?

Dustin Heiner: I am great, Joe. How are you?

Joe Fairless: I am doing well, and welcome. Looking forward to our conversation. A little bit about Dustin – he is the host of the Master Passive Income Podcast. He’s an active real estate investor who quit his job at 37 thanks to his rental property investing. Based in Peoria, Arizona. With that being said, Dustin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Dustin Heiner: Sure. When I was 25 years old I realized that I was working an hour and getting paid for that hour, basically earning money… And I thought there has to be something better. So I read a really good book, Rich Dad, Poor Dad, which probably most people have heard of…

Joe Fairless: Never heard of that one.

Dustin Heiner: [laughs] Yeah, exactly… So I learned about passive income and I realized, “Man, I’m not a singer. I can’t play the guitar, I can’t do anything creative, so I’ve gotta figure out another way.” I started looking into other businesses, so I started a retail shop; an actual business. I sold that a couple years later. I had a skateboard manufacturing business, I had a graphic design company… I had so many other businesses, and then I started a business doing real estate rental properties. What was super-awesome was that the best thing that made me the most money and made me work the least was real estate. So I got rid of every other business and I continue with real estate. So I started buying property after property. When I was 27 years old I made a decision that when I’m 37 – so ten years from now – I’m gonna quit my job, no matter what. And I’m so excited that after 9 years of investing I finally quit my job, and when I was 37 years old I was completely successfully unemployed, and I continued to build my business.

Now I teach people how to invest in real estate and rental properties. I don’t do flipping, I don’t do wholesaling; it’s solely real estate rental properties.

Joe Fairless: Okay, that makes sense, and quite the entrepreneurial background, with the different businesses – retail shops, skateboard manufacturing, graphic design, and rental properties… How many rental properties did you have at age 37?

Dustin Heiner: I wanna say it was 29… I think 28.

Joe Fairless: Wow! Quite a portfolio. Were they all single-family homes?

Dustin Heiner: Single-family homes, and the majority of them did not have a mortgage on them. I was able to buy them and sacrifice, and not go on vacation and just buy more. My wife is really risk-averse, so I had to prove to her that the business worked. A big thing was to not get too much leverage. I used leverage, but at the same time I used savings. I started with $17,000 when I was 27 years old when I first started, and in the end I was able to pay off all the mortgages. Now I think I have 35 or 36 properties. I buy and sell… Just a little while ago I bought three single-family homes and a duplex from an investor. It  was a great deal; seller financing on top of it as well, so it worked out really well.

Joe Fairless: How did you accelerate the paydown of a lot of those 29 properties when you were 37 years old?

Dustin Heiner: The fantastic thing is passive income just keeps rolling in. I can’t stop it from coming in… It just keeps coming in. So the more properties I buy–

Joe Fairless: Have you tried to stop it?

Dustin Heiner: No… [laughs] I don’t think I ever will. My wife would not be happy if I did that. So I just had so much money come in, as I was about to quit my job… She and I were looking at our finances, and saying “Well, we have plenty of money coming in; we don’t need to pay them off… But we don’t need to buy any properties.” If we basically used half of our savings to pay off the mortgages, we can still continue to build the business, because we have plenty of cash to keep building the business, but at the same time we would have thousands of dollars savings in our pocket from not paying a mortgage. So we did that, and it’s been a little over two years now, and praise the Lord, it’s been fantastic. I’m absolutely super-excited to never work a job again.

Joe Fairless: So you’ve used savings that you had from your W-2 or other ventures to pay down the mortgages… Did I hear that right?

Dustin Heiner: I used savings from my passive income. Obviously, until I quit my job, I had a job; I was making like $75,000/year. But I also had my business where I was making tens of thousands of dollars a month, so I was saving that up, and then I sold a property, which gave me a good amount of money as well, and I was able to pay off a good amount of mortgages.

Joe Fairless: So the passive income from the properties was helping, but it sounds like the big chunk that came to pay down those property mortgages came from your side-businesses – the retail shop, the manufacturing skateboards, graphic design… Is that accurate?

Dustin Heiner: No, absolutely not. I was losing money [unintelligible [00:05:16].27]

Joe Fairless: What did you say made tens of thousands a month?

Dustin Heiner: My real estate, the rental properties.

Joe Fairless: Your rental properties, okay. So they made tens of thousands a month… So how many tens of thousands did they make a month?

Dustin Heiner: At the time it was $15,000.

Joe Fairless: They were making $15,000/month. Wow! Those are some good properties. So each property was netting over $500/month in profit?

Dustin Heiner: Yeah, and as I would buy a property, if you didn’t have a mortgage, then all that money comes in your pocket as well. So we really literally sacrificed. My one vacation a year was taking my family from California to Phoenix. I currently live in Phoenix now, but I used to live in California. We would drive all the way to Phoenix to visit my wife’s parents and then drive back. That was our one vacation a year. We wouldn’t go to Disneyland, we wouldn’t do anything, because every penny that went out, I thought “I can use that money to buy a property.” So I kept buying more and more properties, and sacrificing, so I had enough to quit my job.

Joe Fairless: Let’s talk about some of these properties. That’s some good stuff, because I own four — three single-family homes. I switched to apartments, but I originally bought three single-family homes, and those puppies don’t get anywhere close to $500/month, so… Give us some numbers on a couple deals within that 29-unit portfolio.

Dustin Heiner: Okay. So I ran the gamut from — actually, when I first started it was in 2007, and you know the prices were crazy in 2007…

Joe Fairless: Sure.

Dustin Heiner: I was in California too, and I realized that I would not be making any cashflow from a property that I bought in California. At least it’d be very hard. So I started looking all around… This was, like I said, 2007. I looked out of the state. And I didn’t know what I was doing; I didn’t have anybody showing me. I just realized “I need to buy something. I need to make a change.” So of all places, I found a place in Ohio and bought my first property. It was $17,000 cash that I bought the house for, and it rented for $550. I still own it. It rented for $550/month. From that property — I had a property manager that charged 10%, so it’s only $55/month. Property taxes, insurance — so I was pocketing about $400/month from that one property.

That $400/month from one property – I realized, “My goodness, I need more of these.” So I kept buying more inexpensive homes. Now, there’s a downside – I wrote a blog post and actually did a podcast episode on this…

Joe Fairless: Turnover.

Dustin Heiner: Yeah, it was high turnover… High expenses as well. So I figured out a way to mitigate all those things. Because I knew I was gonna quit my job, I wanted to make sure I have a steady income, and I figured out a way to make it really steady from these cheaper homes. Since then I graduated to more expensive homes. I invest in Texas as well… So as an investor, I just buy any property that is a good investment, that’s gonna be making money.

Joe Fairless: I love that example, so let’s get into some specifics. What is your solution to a high turnover and expenses for low-income properties?

Dustin Heiner: There’s a couple things that come to mind. The biggest one – you’re gonna know this, and this goes into one of your questions you normally ask… But running your business like a business. If you have one rental property, you have to treat it like a business. If you don’t pay your mortgage, your bank is gonna come after you. Same thing – if you have one rental property… It’s my grandma, or my aunt, so I don’t wanna kick them out, or anything like that  – you can do that, but you’re gonna lose money, in my opinion. So what I had to do is I had to implement systems in place that when people stop paying, you need to evict them. So not just that, but finding good tenants.

I’m pretty sure all your listeners are smart, so they do background checks… But a big one is in the rougher areas, the cheaper-priced homes, your property manager might say “Well, the people won’t pay for an application fee for the background check. So they’ll do a background check, but they don’t wanna pay for it.” Well, in my opinion that $30 for a background check is gonna save you $1,500 to $2,000 in an eviction. So pay the $30 on your own if they’re not gonna pay it.

I’ve screened out so many people from being bad tenants… One lady – her application looked fantastic, so I did a background check and it turns out she was lying on everything. She had been evicted four times in the last three years… And I said “I’m not gonna be the fifth.” So I didn’t put her in there. If I [unintelligible[00:09:11].07] she’d be in there and then out in three months I’d be evicting her. So that’s another huge one, doing a background check.

But here’s one that I would say is one of the better tools that you need to have when you’re investing in these cheaper homes – every market has a low, middle and high price of homes, but also rent and how much you can rent it for. In the places where there’s higher turnover, cheaper homes, people move as if it’s changing their shirts. They just up and move, and they’ll leave all their stuff and go move to another place. I don’t understand, it’s just how it works out. So what I’ve found is they’ll move for $25. If I’m renting it for $550 and another place down the street is $525, they’re gonna just move for that. I’m like “Wow, that’s a bummer.” The low is $500, the high is $600, middle is $550, I was renting in the middle, so I realized “Well, I’ve gotta be like $520, or $525.” Even just $25. To us, that’s a lot of money; we know $25 is a lot of money, but for them, that is living in these homes that only rent for $550, that’s a ton of money. So that’s a number of other things I would suggest that in order to do these cheaper homes, and work and have businesses in these areas, you have to implement these systems, in the mindset of your tenant, to make sure they stay there, take care of the property, and that they don’t have high turnover.

Joe Fairless: So that second point was “Be one of the cheaper options”?

Dustin Heiner: Correct. Obviously, good property. You want it to be a livable, a good property, but you wanna price it so that they don’t see a new shiny object or a new shiny house. “Oh, it’s $25 cheaper over there. Let me just move.”

Joe Fairless: So the first place was 17k… Where in Ohio was it?

Dustin Heiner: Youngstown, Ohio.

Joe Fairless: Do you still have it?

Dustin Heiner: Yes, I still do.

Joe Fairless: Alright. So that was the first place. You live in Peoria, Arizona…

Dustin Heiner: Yes, it’s basically Phoenix.

Joe Fairless: Thank you. You live in basically Phoenix. Where was your second property purchase?

Dustin Heiner: I would say 19 of my properties were in Ohio, and I branched out from Youngstown, to Akron and Cleveland. That’s where the majority of the properties are currently at.

Joe Fairless: How did you find them?

Dustin Heiner: It was actually really funny… When I first started investing, Zillow basically just came out, so I was using Zillow, and I was using some MLS… But I looked on eBay, and for some reason I found a property on eBay. It was a duplex, and at the time, in 2007, a duplex in Youngstown, they were trying to sell it for $45,000. I thought “Wow, for California that’d be a cheap place, but I don’t know if it’s good or not.” So I realized after I flew out there – and since then, with 35+ properties, I’ve literally only seen one of them before I bought it, and I’ve only seen two total; including that one. All the other ones I rely on other people, their eyes and ears, and all that sort of stuff.

But in finding that property on eBay — I flew out there and I checked out the property… It turned out that $45,000 was way too much. It should have been like $30,000. So I was like “Wow, I’m glad I figured that out.” Like I said, with 19 of my properties I started in — actually, it was probably 15 in Youngstown, then I branched out to Akron, and Cleveland, Maple Heights, and things like that.

Joe Fairless: You have 19 in Ohio… And the average purchase price was what?

Dustin Heiner: I was gobbling them up, and this is a big reason why I was able to accelerate the passive income and the properties I was buying in a few short years – as soon as the market turned, prices dropped. You’re gonna laugh, but the cheapest home that I bought — and I’ll give you a quick story on that… So it was an REO, a bank was selling it for $20,000. I put in an offer… You know, I don’t care about the bank’s feelings; I just want a good price, so I know I wanna negotiate. My goal would be about $12,000-$13,000. I really wanted them to come down… So put an offer in for $6,500. They didn’t counter, or anything like that. They just didn’t reply. And six months later, I get a call from my realtor, “Hey, is that offer for $6,500 still on the table?” I said, “Sure it is.” So I bought the house for $6,500.

So the average price in the area in 2010 and 2011 – I wanted to get into a property, having it rented, fixed up and everything for $12,000 or below. So I’d say about 15 of my properties were like that, and that was my business model. And I taught so many of my friends how to do it, and they were doing really well… But since then, the market has gone up. Now the home that I bought for $6,500 I think is worth $30,000, or something like that… So with the depressed market, I was able to gobble up a ton of properties.

Joe Fairless: What does it rent for?

Dustin Heiner: $450.

Joe Fairless: $450. It sounds like the rents were all around $400-$500, maybe $600… So how were you netting in profit $500 with these rents so low, plus not even factoring in the turnover costs?

Dustin Heiner: Sure. Each one of those properties I progressively got better, and as time went on, by the time I quit my job, they were renting for $750. Plus I had properties in Akron, Ohio as well, and Cleveland, Ohio. In Cleveland they rent for $1,100… So by the time I was six years of investing, I had 19 properties, but by the time I quit my job, I think I had 28. So I included, obviously all the properties.

Joe Fairless: Okay. And what was your job?

Dustin Heiner: I worked [unintelligible [00:14:01].27] I worked as a systems and procedures analyst for the Sheriff’s Department.

Joe Fairless: And you have clearly developed a system for your investing, too.

Dustin Heiner: Absolutely.

Joe Fairless: Okay, cool. Well, what is  your best real estate investing advice ever?

Dustin Heiner: It’s gonna be super-easy to say, and people are gonna be like “Oh, that’s common sense”, but at the same time, to actually do it… So my absolute best advice is don’t lose money. Absolutely, just like I said, it’s gonna make common sense, but don’t lose money… And when you’re buying a rental property, what I suggest to all my students, the way that you don’t lose money is you buy it right; you make your money when you buy it, you realize when you sell it. But we’re investing for the long terms. Holding on to these properties for a long time. And the way you don’t lose money by renting out long-term is by getting at least $250 or more in passive income coming in your pocket every single month. If you’re investing just to make $50 or $100, if you have a furnace go out, then that scratches your entire year of profits; or a roof, or a leak, or something like that.

You have a good chance of mitigating any loss of an entire year of profits if you shoot for $250 or more in profits. So with that, if you don’t live an area that you can do that, which I didn’t when I lived in California, I would suggest from there investing in another state. And if you invest in another state that has good price to rent ratio, you need to hire a good property manager from there, get good tenants, and then also run the business like a business. So that all goes together.

Joe Fairless: Do you have any other tips for decreasing tenant turnover? And before you answer that, just so I’m summarizing your business model… As far as I can tell, you used to buy a property that’s lower end, perhaps that’s increased now, it sounds like, and then you make sure they’re qualified with background checks and whatever else, and then you keep the rents on the cheaper end relative to the competition, so that these residents stay there longer… But I imagine even with those two things implemented, turnover costs will eat up a lot of that profit, so any additional tips you have for decreasing turnover costs with these types of rentals?

Dustin Heiner: Yeah, a couple things come to mind… Having a good property manager is really gonna help mitigate any problems, and being proactive, where your property manager is letting the tenants know – and consistently letting the tenants know – “If there’s an issue, let us know. We don’t want you to have something leaking for a month straight. If there’s a leak in the roof, or there’s something…” But basically being proactive.

The cheaper homes – there’s a number of reasons why they’re cheaper, but they’re also older homes, so there’s a lot of issues with the property. So number one, you’re keeping the property good, in good standing and good shape, if you have the tenants be proactive, letting the property manager know about issues, but then you’re also making sure that the tenants are not necessarily happy, but that the property is taken care of, that they’re appreciated. Hey, we value you as a tenant; we’re gonna take care of you. Let us know if there’s issues. We wanna make sure we get things taken care of. So that’s one of the biggest ones.

That goes hand-in-hand with taking care of your tenants, making sure that the tenants aren’t living — because I was just working with a student yesterday… She was looking in Detroit to start buying properties, and some of them look like there’s a ton of work; I mean, literally, $15,000 just to make it where you can [unintelligible [00:17:20].12] walking in there, not making it look good. So they’re asking $10,000 for it, and I said “Well, if they give me the property, then I might take it and fix it up…”

So you can just get it barely able to have somebody live in it, but a tenant is not gonna be happy. They’re not gonna be like “This is a place I want to stay.” So not making it the prettiest girl to take to the prom. You don’t want that. You want it to be where it’s in good standing with the other properties in the area. Making sure that it’s comparable to the other properties. If there’s no granite countertops in the homes, I personally wouldn’t spend that money for a granite countertop, but I would put a nice Formica or something, a granite countertop, but I wouldn’t leave one in that has holes, or chips, or stains, or burns from previous tenants. So taking care of the tenants is one of the best ways to make sure that they stay in there.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Dustin Heiner: I sure am.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:18:15].26] to [00:18:58].28]

Joe Fairless: Best ever book you’ve recently read?

Dustin Heiner: Best ever book is “Richest Man in Babylon.”

Joe Fairless: Best ever deal you’ve done?

Dustin Heiner: The one I mentioned a little bit earlier – I bought three single-family homes and a duplex from another investor who wanted to get out; he had a wine business. I bought it, I had $25,000 cash put down, the rest is seller financing, and I make $1,200 to $1,500 a month on the properties.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Dustin Heiner: Losing money. Well, losing money number one, and not running it like a business. If you don’t run it like a business, then you’re just gonna lose money because tenants will take advantage of you.

Joe Fairless: What’s a deal where you lost money?

Dustin Heiner: In buying the property no. I never lost money in buying a property, because I don’t buy for appreciation, I buy for long-term. So where I lost money is when somebody sat in the property for six months as opposed to two, when they should have been kicked out.

Joe Fairless: Best ever way you like to give back?

Dustin Heiner: I love helping people. I hope it comes across… I am really passionate about real estate, because it’s changed my life so dramatically, where I literally don’t have to work a job… So I love talking to people and even coaching people. Before I even started coaching with master passive income, I was just helping friends and family, because they were saying “Hey, you’re quitting your job… How in the world did you do that?” and I said, “Hey, let me show you.” So I just love, love-love-love sharing and talking about it and helping people to do the exact same thing.

Joe Fairless: And how can the best ever listeners learn more about what you’ve got going on?

Dustin Heiner: I have my podcast and my website. is where you can go check out the coaching or my podcast. My podcast, Master Passive Income Podcast – I talk and I interview people; it’s mostly me sharing, but everything about rental properties… Not flipping, or anything like that. We talk all about rental properties.

Joe Fairless: Dustin, thanks for being on the show, talking about your business approach and your business model for how you purchase homes, and what you look for, and finding the initial properties off eBay, and then building a system that you like, that works for you, and getting the cashflow.

Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Dustin Heiner: Thank you, Joe. I really appreciate it.

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