A 27-year-old real-estate investor making up to $15,000 a month in revenue explains how to snag a multi-unit rental property below $200,000

• Cody Berman sticks to houses that are near $200,000 and have multiple units.
• This allows him to maintain a single property for multiple tenants.
• He’s very strategic about the neighborhoods he buys in.

Cody Berman, a freelancer who primarily sold digital products such as calendars and planners, was concerned that his source of income would be fleeting.

It’s why, he says, he became interested in real estate, an asset class that will always be in demand. But, unlike many investors who are concerned with the potential appreciation of a home, he was more concerned with cash flow from rental income, which meant he had to pay attention to margins.

Berman had grown up in central Massachusetts, where home values were high. He looked at over 50 properties online and visited at least ten in person before giving up.

Things were simply too expensive, and the price-to-cash flows didn’t add up, he claimed.

He received a recommendation from a friend to look in Connecticut and Rhode Island. Both states were within driving distance of him, but there were neighborhoods where home prices were 40% lower than in his own neighborhood, while rents were only 20% lower, resulting in higher margins.

A happy medium

Berman explained that his bank had preapproved him for a $275,000 mortgage, so he had a budget to stick to.

Many houses looked great on paper when he started looking through property listings in nearby towns, but when he visited them, the neighborhood felt unsafe or was a food desert, he said. Viewing properties in person significantly reduced his options.

He looked at active property listings on Apartments.com and Zillow to see what was available for rent and what had been successfully rented in the previous 30 days. He also looked at Rentometer, which displays rent ranges by zip code.

He found his first property in Windham County, Connecticut, which was a three-unit multi-family in good condition and in a nice neighborhood. He paid $235,000 for the house with a 20% down payment. Berman was able to occupy the basement while renting out the two main units, allowing him to not only live rent-free but also cashflow about $500 per month.

“It was on the rise,” he said. “It felt like we were in an old mill town, and we felt safe walking around.” We actually lived there. “We did the house hacking,” Berman explained. “But even with ones where we didn’t live directly on the property, we’d just go there, tour, walk around, do a mile loop, and see if we felt safe?” Is there anything around here? Is this a place where people have good jobs and where the market is growing? Is there anyone jogging or pushing babies in strollers in this neighborhood?”

Berman advises paying attention to neighborhood indicators that may indicate future economic growth in the area. The opening or presence of large chain stores, such as high-end coffee shops or brick-and-mortar stores, is the most significant. Before opening in a specific neighborhood, these businesses conduct extensive market research. He believes that simply leaning on the backs of those giants is a good strategy. In contrast, company closures indicate the opposite.

He also considers school ratings, which can be found on websites such as Zillow, walkability to shops, and proximity to a highway or public transportation that connects to a major city. This gives you access to a larger rent pool because city workers tend to be higher earners, he adds.

“So we’re not buying a place that’s three hours outside of a major metro area,” Berman told me. “We’re buying a place that’s like 25 minutes to 50 minutes, so it’s close enough where they can get in and out if they want, but not so close that you get priced out.”

Berman mentioned that there are additional tools available to help you research population changes, crime statistics, schools, living costs, and average incomes. City-Data.com is one of these sites.

Berman went through the process several times and was able to find cheaper houses, including a duplex for $170,000. According to lease agreements obtained by Insider, Berman now owns one duplex in Massachusetts and two three-family homes in Connecticut and Massachusetts for a total of eight long-term rental units bringing in $9,300 per month. He eventually entered the short-term rental market by purchasing one property with a business partner and comanaging two others. Together, they earned $5,520 in September, totaling $14,820 in rental earnings that month.

Price is important.

On Friday, the average 30-year fixed mortgage rate in the United States was around 7.67%, having more than doubled in the previous two years. Reduce the size of your loan by putting down more money or finding a cheaper house to pay less in interest.

According to Fed data, the median sales price of houses sold in the third quarter was $431,000 per unit. According to Insider’s mortgage calculator, a $431,000 house with a 20% down payment and a 30-year fixed rate of 7.67% would result in monthly payments of about $2,451. The same arrangement for a $200,000 home would cost $1,137 per month. Berman pointed out that this is less than half the amount and a much more manageable payment.

The total interest payments on the more expensive property are approximately $538,000 versus $250,000 on the less expensive property. Even if you could afford the higher-priced house, opting for the lower payments and increasing your monthly payment would benefit the primary. The loan would be paid off faster and with less interest.

If you have a gap in rental income, you can cover it more easily than if you have a payment twice as large. He claims that the more houses you buy, the more risk you take on. It’s much easier to start with a less expensive property because you have a lower down payment, less financial risk every month, and more options for tenants because the demand for affordable housing is higher. He noted that a smaller group of people can afford to pay high rents.

Dip twice or three times

Berman invests with a cash flow mindset. However, he noted that a common approach he has observed among other investors is that they aim for appreciation, which is part speculation. He does not recommend this strategy, particularly for a single-family home.

For example, properties about 20 minutes from a major city are frequently overpriced, but many people buy them with the expectation that their value will rise further. He explained that you end up with a higher mortgage payment. Even if you intend to rent it out while it appreciates, he says, those types of properties are difficult to make good cash-flow margins on.

He follows the 1% rule, which states that a property should be able to return 1% of its value in monthly rent in order to be a good cash-flow investment. When mortgage rates are high, this can be difficult to achieve. Having multiple units under the same roof, on the other hand, allows you to collect more rent. It’s also more efficient because you only have to maintain one plumbing system, one electrical system, and one roof for multiple units, rather than all of that for a single unit, he says.