Austin Gray: Welcome back to the OWNR OPS podcast. I'm your host, Austin Gray. In this episode, I have a special guest, Sean O'Dowd, from the Chicago area. Sean runs a real estate fund specializing in residential real estate, and I'm excited to have you on, Sean.

Sean O'Dowd: Thanks for having me!

Austin Gray: Yeah, super excited! I had a great time with you this past weekend. Looking forward to jamming with you now.

Sean O'Dowd: Yeah, the event was awesome! You've got a little bit of involvement with that, huh?

Austin Gray: A little bit. Yeah, I'm helping Kristen out on the backend with some of the structure of the events and everything.

Sean O'Dowd: Yeah, I saw your email come through after the event. It’s cool that you’re helping out there. Christian's got something good going on there.

Austin Gray: Totally! I think it’s super important to keep everybody in touch. The event you’re talking about involved creating an online forum where we could all keep in touch and chat, which I think is awesome to maintain the momentum from the weekend.

Sean O'Dowd: Yeah, before we dive into real estate, let’s just talk about that event. It was incredible! What were some of your takeaways?

Austin Gray: There were a ton throughout the weekend. At a high level, it was great being with a bunch of guys who I was reflecting on—everyone there was between the ages of 25 and 45 and either owns their own business or is about to own their own business if they don’t already.

Sean O'Dowd: That gentleman's in private equity, so he was pretty involved with the operational side of business things. Getting a group like that together was awesome, and just being able to learn from other people in various different stages of their ownership journey was fantastic.

Austin Gray: Yeah, throw in some of the lessons you learned from the Special Operations guys—the two SEALs who were there—and Christian. I think the two big ones were: one, the concept that "calm is contagious." You need to be calm as the leader because that calmness will spread to everyone else. The second one was the research Christian discussed about how the first four minutes of your day have an outsized impact on your productivity.

Sean O'Dowd: Absolutely. I left thinking about that four-minute quote over and over again. I don’t know about you, but here we are Thursday, the week following the event, and every single morning when I've woken up, it has crossed my mind: what am I doing right now in these first four minutes?

Austin Gray: That's interesting! I've been paying attention to the thoughts I was having before just jumping out of bed. I have to imagine you might fly out of bed to get the day going, right?

Sean O'Dowd: Yeah, it’s interesting because, you know, we could get sidetracked on this topic. The big thing I took away from it is that our thoughts inside our minds control how our bodies react. A big moment for me was when Zach shared about getting through Hell Week with an inoperable knee. I think he tore a ligament. He said, "Yeah, you're going to have to kill me if you want me to quit. I'm going to use my left hand and drag my left knee to get through whatever I need to get through." He basically finished with one arm and one leg, which is insane.

Austin Gray: Absolutely insane! It makes what we do as entrepreneurs seem like a cakewalk. Yet, we overthink these things or romanticize our big problems. But in reality, it’s pretty simple if you just train your mind to think about being calm in high-stress situations.

Sean O'Dowd: To that point, someone asked Zach to clarify this, and he did. Hell Week is not so physically difficult that you can't get through it with just one arm and one leg. It’s not an impossible athletic feat; it’s all mindset. You need to set your mind to say, "I’m going to make this happen," and he was able to do it with literally half his body working.

Austin Gray: Yeah, going back to the first four minutes of the day, what are some things you've been thinking about regarding that?

Sean O'Dowd: The big one for me is just to get moving quickly. Optimally, I'd love sunlight, but it’s winter in Chicago and it’s pretty dark this time of year. So I've been waking up, and immediately getting out of bed to do some push-ups just to get moving. If it were summer, I would probably get out of bed, go outside, and do some push-ups in the backyard to catch some sunlight.

Austin Gray: I think those are great points—get up, get sunlight, and get moving! One thing that’s been interesting is how easy it is to fall into the trap each morning of saying, "Oh my gosh, I’m still so tired! I just want to go back to bed."

Sean O'Dowd: Yeah, especially with kids!

Austin Gray: You’ve got young kids, right? It’s super easy to fall into that.

Sean O'Dowd: For sure! But, immediately upon waking—even this morning, I was a little bit behind—I had to use the restroom (not to get too detailed, but that’s part of my morning routine). I was sitting there, feeling it's almost like a blank slate for the first couple of minutes. You're still foggy, but I think the faster I can get to telling myself something positive in my brain—you're convincing yourself that you are a high performer, whatever that may look like—it makes a big difference.

Austin Gray: Absolutely! Whether it’s telling yourself you’re calm, confident, healthy, or happy, whatever we tell ourselves is often what we end up doing with our actual bodies. Something I’ve been repeating to myself this week is, "I’m calm, I'm confident, I'm healthy, I'm happy." The other thing Christian talked about was gratitude. Asking myself, "What am I thankful for?" is also key.

Sean O'Dowd: Yeah, that’s a good one! I had forgotten the whole conversation about gratitude, so I’m really glad you mentioned that. Thanks for the reminder!

Austin Gray: All this to be said—the event was awesome. Thanks for all you're doing behind the scenes helping Christian. There’s something really good going on with Uncommon Elite.

Sean O'Dowd: Yeah, the next one's in Hilton Head at the end of March.

Austin Gray: Exactly! Maybe we can get the band back together for it.

Sean O'Dowd: For sure! Christian and I have been talking about hosting one out here in Colorado this summer. So, any of you listening who are interested in that event—I literally have no stake in this other than the fact that I found it very helpful as an entrepreneur.

Austin Gray: It’s so easy to get siloed in your own world. I’m not going to lie, last week leading up to the event, I thought, "I have to fly somewhere; I need to get out of my routine." I have this whole checklist that I’m good at checking off each morning at my own desk. I like hanging out with my wife, I like being with my daughter, and like you said, having young kids right now makes it hard to leave the family. So, I went into it with a bit of a negative mindset, but once I got there, it was immediately apparent that this was going to be awesome.

Sean O'Dowd: That’s awesome. Glad it was a quick evolution! There’s immediate value add to the situation.

Austin Gray: Right? It’s almost like summer camp. You build really quick relationships with other people because there are like-minded individuals, and you leave that event like, "Holy crap, I just made like nine or ten new friends that I can reach out to at any time if I’m in a bad spot!"

Sean O'Dowd: Totally agree! So, we will jump into more of the real estate here, but to finalize that: if any of you guys are interested in the Uncommon Elite event, I said Christian and I spoke about doing one in Colorado and we’re looking at July 22nd. So just reach out to either Christian or me if you are interested in that. We’re all on Twitter, and that’s sort of the best place to get in touch about that.

Austin Gray: Let's talk real estate!

Sean O'Dowd: Let’s do it! You are raising a fund right now to go buy residential real estate, and the way I understand it, you are buying real estate in great school districts, correct?

Austin Gray: Yep, that’s exactly right. So, give us the background—how did you get into this?

Sean O'Dowd: From a background perspective, the real estate interest really came from growing up. I moved 22 times when I was growing up, which was a ton! It made me super interested in real estate because finding a new place to live was this fun thing my family was doing every six to eight months or so.

Austin Gray: That's interesting!

Sean O'Dowd: It was cool because it gave me exposure to a lot of different places. We bounced all around the country and did some time internationally before coming back to the U.S. again. When I was probably in seventh grade, I started realizing that there was a pattern: no matter where I was living across all these different places, there was always that school in the area that people talked about and everyone wanted their kids to go to—the really good school.

Austin Gray: That’s interesting!

Sean O'Dowd: Everybody kind of knew which one it was in that area, and I thought, "Okay, so this is something that holds true no matter where you live.” I went to business school, started consulting, and learned about the concept of competitive advantage. I put two and two together, and it clicked: if you can buy a piece of real estate that has access to a fantastic public school, that’s a competitive advantage that makes that property better in the eyes of a tenant than perhaps a different property.

Austin Gray: That makes total sense.

Sean O'Dowd: So I thought it made sense. I started buying homes to test it, and it was a home run of a deal. I did another one, another one, and it was the same story. I realized there was something here, and we refined our thesis based on those test runs we were doing. Eventually, we decided it was time to turn this into a full-time fund, and that’s where we are today.

Austin Gray: You’re such a humble guy, Sean. I love how you just brushed over the fact that you went to business school. You’ve got to tell the listeners where you went!

Sean O'Dowd: I went to Wharton.

Austin Gray: So, you’re talking competitive advantage—you learn about this, you find an opportunity—were you investing personally in those first deals?

Sean O'Dowd: It was 100% my wife and mine’s money. I was running a small service consulting business after I worked in big consulting, then worked independently for a while. I was taking the profit from that business and putting it into the real estate to test it.

Austin Gray: You mentioned one of those deals was a home run. Can you tell us what that means in residential real estate? I think it would be better for the listeners right now—many are involved in local service businesses—but residential real estate is one way to invest long-term. So, could you start by breaking down just the principles of residential real estate investing? Then, part two to the question: what is a home run deal?

Sean O'Dowd: For sure! From a residential real estate perspective, I think of real estate as a business at the end of the day—especially on the residential side. You buy a home, get it rented, and the rent coming in is the revenue of the business. What’s a little different in residential real estate, though, is you don’t really have the opportunity—your revenue is contracted. You can’t increase it or decrease it once you get your revenue signed for the lease term. That’s what your revenue will be.

Austin Gray: Right!

Sean O'Dowd: Then you’ve got your costs to the actual business, which includes your mortgage, if you’ve got one, your insurance, property management (if you’re doing that), utilities—there’s a whole host of costs that you need to build into your actual business.

Austin Gray: Makes sense.

Sean O'Dowd: When you subtract revenue minus costs, you get your actual profit. In my opinion, the name of the game in residential real estate is to buy something that is the perfect intersection between the amount of work you need to do to deliver that return and the highest amount of profit.

Austin Gray: I see.

Sean O'Dowd: What I mean by that is, you could buy residential real estate right next to a college campus, and you might make a really good amount of profit from that property, but that house is going to get trashed. You’re going to get calls from the cops and the neighbors every single Friday and Saturday night because it’s right next to the college campus. You’re going to put in a lot of effort to get that return.

Austin Gray: Right.

Sean O'Dowd: From my perspective, if you can get the highest possible return with the lowest amount of effort required, that’s the intersection you’re really looking for from a residential real estate perspective.

Austin Gray: There’s so much I want to unpack here, but let’s start with the home run deal you mentioned earlier. What does that actually look like?

Sean O'Dowd: So, can I walk through some of the exact numbers on that? The very first one we did was a three-bedroom, three-bath in a really fantastic school district. We bought that home for $440,000.

Austin Gray: Okay!

Sean O'Dowd: This home—this is one of the key parts to our thesis—when we were buying it, we had no good data on what it was going to rent for because the areas we buy homes in are typically 90% to 95% owner-occupied, meaning there are very few rentals in the area.

Austin Gray: Got it.

Sean O'Dowd: When we were buying this home, our agents sat us down a couple of times and asked, "Hey, are you really sure you want to buy this? There are no comps available to rent it." The last two rental comps that we could find were from two years ago, and they were for $2,200 and $2,400. They said, "If you’re lucky, you might get $2,500 or $2,600. Are you really sure?"

Austin Gray: Wow.

Sean O'Dowd: We said, "Yep! We're going to roll the dice and see what happens." So we closed on the home for $440,000. It was already in great shape, and when we put it on the rental market, we had 50 to 70 people reach out in the first 24 hours to attend the house.

Austin Gray: Exciting!

Sean O'Dowd: It was all about the competitive advantage—people wanted to be in that area. On the supply side, there was no rental supply because it was 90% to 95% owner-occupied. We were the only game in town.

Austin Gray: That makes total sense.

Sean O'Dowd: We started getting a ton of interest, and we rented the property at a good price at the time, which was $3,500, on a three-year lease with annual rent escalators built into the lease.

Austin Gray: Fantastic!

Sean O'Dowd: The tenant actually ended up prepaying for one of the years as well, which was insane. We thought, "Okay, there’s something really here."

Austin Gray: You got a whole year upfront?

Sean O'Dowd: Yeah! Depending on how you want to count the time value of money and all that, if you treat it traditionally, it was a 15% cash-on-cash return in year one, and that also doesn't even include any equity built up from paying down the mortgage.

Austin Gray: That’s so cool! What was that—like $42k upfront?

Sean O'Dowd: Yeah, something like that!

Austin Gray: Great! Let’s dive into this deal. I’m personally very interested in this because I have a couple of residential rentals myself and I’m looking at more. I want to pick your brain on this $440,000 purchase price. What kind of leverage, what debt did you put on that?

Sean O'Dowd: So we did 20% down on that one. We now do more, but we did 20% down at the time.

Austin Gray: Okay.

Sean O'Dowd: And, actually, I think we got a mortgage with Wells Fargo.

Austin Gray: So 20% down—you get 80% debt on that. How do these numbers shake out from a monthly perspective?

Sean O'Dowd: For this property, we ended up getting $3,500 a month in rent. Our vacancy cost was essentially zero because we had it rented immediately, and it's on a three-year lease. Assuming we don't have someone moving out mid-lease, which is very unlikely, these are pretty sticky tenants. They want to stay there until their kids graduate high school.

Austin Gray: That’s great!

Sean O'Dowd: So vacancy was basically zero, utilities were zero because they went straight from the seller’s name to the tenant's name. From an insurance perspective, it was a very nominal cost. The Upper Midwest doesn’t have a lot of insurance costs compared to Florida or something like that.

Austin Gray: Understood!

Sean O'Dowd: Property management cost was also basically zero because we run property management both then and now through the fund—we do that in-house because we can run it very lean.

Austin Gray: Fantastic!

Sean O'Dowd: It ended up being a situation where from a cost perspective, our leverage was almost all of it, and the added costs on top of that were very low.

Austin Gray: Let’s jump into how you underwrite a deal. Is it different to underwrite a deal now with the fund versus how you were underwriting in the beginning?

Sean O'Dowd: It is. When we first started underwriting, we were looking for a similar kind of quality of home. The thing we weren’t thinking about was what kind of home would be attractive if we were to sell it later on. When we first bought homes for ourselves, we planned to keep these forever, so we looked for homes we were excited about.

Austin Gray: That makes sense.

Sean O'Dowd: When we built the fund, there’s a scenario where we buy 200 to 250 homes, and then we sell all 200 of them to a private equity fund that wants to buy them for the cash flow the portfolio generates. In that case, there are two obvious things the big private equity buyer won’t want: pools and solar panels.

Austin Gray: Got it.

Sean O'Dowd: So we’ve slightly changed our criteria. There are a whole host of things—like 16 or 17 different factors—we now check because our objective might be slightly different. We need to keep the option of a sale open by buying homes that we could sell.

Austin Gray: Perfect. Thank you for giving us that holistic overview. Let’s dive back into those early purchases. How did you personally underwrite these and how were you looking at it from an investment perspective? Here’s how much cash I have to put in, and here’s what return I’m looking for.

Sean O'Dowd: For us, when we were underwriting it, I went back to the concept of considering each one of these homes as an individual micro business. What’s that business's P&L going to look like from a revenue and cost perspective?

Austin Gray: Interesting!

Sean O'Dowd: The good thing about real estate is that when you start looking at homes, you can find some information about that full P&L ahead of time. Now, the rent number takes a little bit of work to get, but you can work with your insurance broker and lender to understand that cost structure.

Austin Gray: That makes sense.

Sean O'Dowd: That allows you to back out what you think the profit from this home is going to be. We were looking for a home that could generate a 10% cash return, meaning that if we could make a 10% profit after year one, then that was our financial threshold.

Austin Gray: Got it!

Sean O'Dowd: From a stylistic perspective, when we were looking for homes, we sought homes that we ourselves would rent. I think it’s really important that landlords consider buying homes they would feel comfortable living in at their stage of life.

Austin Gray: Absolutely.

Sean O'Dowd: I’ve made this point on Twitter a couple of times, and people have misunderstood me. Someone might say, "Oh, but I’m not a senior and I buy senior housing, so of course, I wouldn’t live there." But that’s not the right way to think about it. For you and your family, if it’s a kind of property you would want your family to live in or yourself to live in, then that’s something you should buy.

Austin Gray: That’s a great way to put it!

Sean O'Dowd: If it’s not to the quality that you would want your family to live in, then you shouldn’t buy it. If it’s senior housing, it’s like if you wouldn’t put your grandma in that house, then you probably shouldn’t be buying it. If you wouldn’t want your grandma there, someone else wouldn’t want their grandma there either!

Austin Gray: That’s a really fantastic point!

Sean O'Dowd: So, you have your financial metrics to look for in returns, but a good test is: would you rent this place? Would you allow your grandma to rent this if you’re buying senior housing? Or if it’s your own family—would this be a home where you’d want your kids to grow up or live while they’re in high school?

Austin Gray: Exactly right!

Sean O'Dowd: If you wouldn't feel comfortable living in that house, the answer should be no, and if it’s not, then it’s a little slumlord-ish. You know it, but you need to articulate it.

Austin Gray: Pay attention to that gut feeling!

Sean O'Dowd: Oh, definitely!

Austin Gray: Alright, let’s dive into the numbers a bit more because I want to break this down as simply as possible for our listeners. The term "underwriting" is thrown around in the real estate world. If people are listening and they’re just involved in service businesses, they may not know what that term means. Can you define that for us real quick? What does it mean to underwrite a property?

Sean O'Dowd: Underwriting a property is basically projecting what you think the P&L is going to look like for that business. You’re putting together what you think the revenue is going to look like—your rent—and what you think your cost structure is going to look like, then how much profit is that going to generate at the end of the day. It’s a step you need to do before you buy any property, start any business, or make any big capital investment.

Austin Gray: That makes sense.

Sean O'Dowd: You need to know what the cost structure and revenue structure will look like and if this is an investment that makes sense to make.

Austin Gray: Alright! Let’s start at the top: you have your rent amount, which is basically your revenue on your P&L. How do you, as an investor, find the market value of the monthly rent? What are some creative ways you’ve found to do that?

Sean O'Dowd: There are a bunch! Some of the most popular and easiest methods are using tools like Rentometer and RentCast. You basically plug in the address of the home, and it’ll pull in information—like how many bedrooms and bathrooms—and give you a forecasted rent. Those are the easiest ones, but I don’t think they’re super accurate for a variety of reasons. They’re good starter points, though.

Austin Gray: Right.

Sean O'Dowd: Step number two is to keep a close eye on Zillow, Trulia, and Realtor.com. I always tell people if they’re going to start buying residential real estate, spend six months studying the market every single day. Set up a safe search and get alerts emailed to you for new properties.

Austin Gray: Absolutely—good advice!

Sean O'Dowd: If you do that, you’ll get a good pulse on the market, how much homes relist for rent, whether you think that’s a good or high price, how quickly they rent, and what the trends look like. I think taking that time to keep an eye on the market gives you a great understanding.

Austin Gray: Definitely!

Sean O'Dowd: The last piece, which I think is also really important, is Zillow’s rental listings feature. It shows you the number of days the property's been on the market, the number of contacts the property has (meaning the number of prospective tenants who reached out), and the number of applications sent through Zillow for that particular property.

Austin Gray: That’s a great insight!

Sean O'Dowd: Zillow was only one of the other real estate websites, but that gives you a proxy for how in-demand this house is. If you’re looking at a house that’s been on the market for three days and has had a hundred people contact it, plus ten applications, that house was likely underpriced or has something desirable.

Austin Gray: Interesting!

Sean O'Dowd: If it's been on the market for a week and has had one person contact and zero applications, that house is likely overpriced or has something undesirable about it. If you start studying this every single day, start picking up on those patterns, you’ll get a better sense of the value.

Austin Gray: I love that approach. So, Zillow actually has a feature to post rental listings, is that correct?

Sean O'Dowd: That’s right! As a potential buyer, you can go on and review what rentals are listed in that specific market.

Austin Gray: Fantastic. And you’re saying to study that for the first six months?

Sean O'Dowd: Exactly! Because by doing that, you start getting a really good understanding of what’s renting, how fast they’re renting, which homes tenants are interested in, and which aren’t. You’ll notice, for example, homes with two bathrooms tend to rent faster than homes with one bathroom because families typically prefer more bathrooms.

Austin Gray: Absolutely.

Sean O'Dowd: Every market is different, and every market will have various things appealing to tenants more than others. If you study every single one of these homes going through the market, you’ll pick up on these patterns and understand why things are working the way they are.

Austin Gray: That’s so fascinating!

Sean O'Dowd: I appreciate that, and I hope so! It’s been good thus far, and we’re hoping to keep that going.

Austin Gray: Great! So, we covered how to study what you could rent this house for. Let’s go down the line items on your P&L. What other expenses do you have when buying residential real estate?

Sean O'Dowd: The biggest one for almost everyone is going to be their mortgage, which is pretty easy to calculate. Every banker or lender will give you those primary numbers. There’s 30-year debt, are you doing ARMs, 20-year debt, whatever.

Austin Gray: For sure.

Sean O'Dowd: The down payment is something you can usually get the numbers for yourself or run through online calculators to see exactly what your monthly payment on the debt will be. That’s always going to be your biggest line item.

Austin Gray: Right!

Sean O'Dowd: Your second biggest line item is either going to be property taxes or maintenance, depending on the area in the country. Some areas have higher property taxes than others—Texas, for example, has really high property taxes.

Austin Gray: Understood.

Sean O'Dowd: There’s unfortunately no hard and fast national rule for property taxes. Some property areas will reassess, meaning they increase your taxes on the sale of the home because they’ll say, "Oh, the home just sold for $500,000; we now know that’s worth $500,000, so we’re going to increase your property taxes."

Austin Gray: Right.

Sean O'Dowd: Other areas of the country may reassess every three to four years, and then they’ll leave your taxes low for the next couple of years. So, for your specific town, you need to find resources online or a local individual. Your agent and lender should know this and help you forecast what your property taxes will look like.

Austin Gray: Okay, I see.

Sean O'Dowd: It’s a mistake to trust the numbers Zillow gives you on property taxes, as they typically assume all the numbers are the same, but there’s so much local nuance. You need to find out what it’s going to look like for you in your area.

Austin Gray: Definitely.

Sean O'Dowd: So that covers property taxes. The next big line item is maintenance, which is extremely important. It’s one of those things you need to put money away for each month.

Austin Gray: For sure.

Sean O'Dowd: The two biggest drivers for maintenance expenses are the square footage of the property and the age of the property. A property that’s 1,500 square feet and brand new will have significantly lower maintenance expenses than one that’s 5,000 square feet and 50 years old.

Austin Gray: Good point.

Sean O'Dowd: When you budget for overall maintenance expenses, you’ll need someone local who knows your market because it can differ dramatically. Whatever number you hear from your inspector, agent, or lender regarding maintenance assumptions, they typically won’t be great at calibrating based on the age or size of your home.

Austin Gray: That makes sense!

Sean O'Dowd: For example, if someone tells you it should be around $3,000 a year for maintenance, and your home is slightly bigger than average, you need to bump that number up. The biggest two predictors of the actual maintenance expense are the size and age of the home.

Austin Gray: Is there a general rule of thumb for maintenance as a percentage of monthly rent?

Sean O'Dowd: I've seen people say anywhere between 1% to 3% of the purchase price of the home, but that’s a broad range.

Austin Gray: Right.

Sean O'Dowd: It changes dramatically annually. If you look at it and say, "Okay, so I just bought a $500,000 home. If it’s 3%, that’s $15,000 a year in maintenance." That’s a lot! It’s typically a little too high compared to what it should really be.

Austin Gray: Absolutely.

Sean O'Dowd: So, this is why you really need to go local. Maintenance occurrence rates change based on the season. The most likely item in any house to fail and need a technician to come out is the HVAC system.

Austin Gray: Right.

Sean O'Dowd: HVAC systems usually fail in the summer, so you could buy a home in September or October right after summer ends. You may not have had any maintenance incidents yet, but you haven’t gone through the most frequent call period for maintenance, which is the summer.

Austin Gray: Got it!

Sean O'Dowd: So, there can be some big seasonality swings in this as well. So, after maintenance, what's next?

Austin Gray: Insurance is typically a big line item, and that’s been rising rapidly across the country over the past couple of years. In some higher-cost areas, such as Florida for hurricanes or California for wildfires, some people are starting to skip insurance.

Sean O'Dowd: Yeah, that’s extremely risky! You can only skip on insurance if you’ve paid off your house. If you try to do that without a paid-off house, your lender can foreclose on you because you’re required to have insurance.

Austin Gray: Exactly!

Sean O'Dowd: Skipping on insurance is risky because if something happens to your house, you’re on the hook without that insurance. I definitely recommend having insurance in place.

Austin Gray: Sure.

Sean O'Dowd: Getting insurance is relatively straightforward. There are a bunch of companies doing great work specializing in investment properties. There’s one in particular called Obie, which I’ve heard is the cheapest for investment real estate.

Austin Gray: That’s great!

Sean O'Dowd: Now that we’ve talked about insurance, is there anything else we’re missing here on your P&L?

Austin Gray: These are typically the big ones. There are some other costs you should make some sort of allocation for, like vacancy, as the place needs to get vacant. You might also have some one-time costs, such as for cost segregation on the property, and you should budget for that because it can end up being a pretty good amount of money.

Sean O'Dowd: That makes sense!

Austin Gray: The last piece is property management, which some people do, and some don’t. If you decide to go that route, it’s a relatively large line item.

Sean O'Dowd: Yes, property managers don’t like working with small residential real estate. It’s easier for them to manage one apartment complex with 100 units than separate houses or duplexes.

Austin Gray: Totally.

Sean O'Dowd: As a result, they get you on the price because it’s not something they enjoy doing. Typically, they will get 100% of the first month’s rent when leasing a property, and then they get 7% to 7.5% of the rent for every month thereafter.

Austin Gray: Interesting!

Sean O'Dowd: So it ends up being over 10% of your revenue—not profit, but revenue—because they get 100% for the first month and 7% thereafter.

Austin Gray: So how does that factor out in your deals? Can your deals support a property manager?

Sean O'Dowd: We don’t have a property manager. We do property management in-house for the fund. Going back to that earlier conversation, you want the highest intersection of profit and hassle.

Austin Gray: Exactly, that makes sense!

Sean O'Dowd: If you’re going to buy something like a frat house next to a university, you probably want property management because you’ll get calls every week.

Austin Gray: Yeah, that makes complete sense.

Sean O'Dowd: In our properties, we only hear from our tenants about four times a year. We have three-year leases that are straightforward for the tenants. We look at it and think we're paying a property manager $7,000 to $8,000 a year to pick up the phone four times. We can easily handle that!

Austin Gray: I love your approach, Sean! This is why I wanted to host you on the OWNR OPS podcast. We talked this weekend about wrapping this up, and I do have to jump in and help out with my daughter now.

Sean O'Dowd: Absolutely!

Austin Gray: I could easily prod you with questions for another hour, if not two. I think this would be a good spot to cut this episode.

Sean O'Dowd: Sure!

Austin Gray: And if we’re lucky listeners, if you like this episode, leave a great review, like it, subscribe, comment: "I loved Sean’s episode!" Maybe we can convince him to come back for a part two, and maybe even a part three because we haven’t even dived into Sean’s business.

Sean O'Dowd: Absolutely!

Austin Gray: I’m thankful for you mapping residential real estate out in simplified form.

Sean O'Dowd: Always happy to do so!

Austin Gray: I love this stuff; it’s so fascinating. So, I’m always happy and excited to talk about it.

Sean O'Dowd: Great!

Austin Gray: We connected this weekend, and I thought, "Sean would be awesome for the OWNR OPS podcast!" The message I try to convey here is whether you’re starting a service business or doing real estate, many promote the mindset of just starting a business and partnering with someone else. But that’s simply not the case, right?

Sean O'Dowd: Exactly!

Austin Gray: You’ve mentioned two things: you’re a hustler, you make things happen, and you earn people’s trust. One thing you said resonates: "I’m not going to pay somebody $8,000 a year to answer the phone four times." You put your ego aside to get things done.

Sean O'Dowd: Exactly!

Austin Gray: There’s so much ego stuff going around, like, "I’m too good to pick up the phone." But you can pick up the phone four times a year!

Sean O'Dowd: Exactly!

Austin Gray: Thank you, Sean! I appreciate you being on the show.

Sean O'Dowd: Thanks so much for having me!