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The Rent-By-The-Room Strategy That Turns One House Into Six Incomes · Brick by Brick - Wealth Building Conversations

• Ryan Chaw: So I was talking a lot about buying rentals and my dad called me out on it. And he said, Yeah, you talk a lot, but you're not actually doing anything, not taking any action to purchasing a rental. You haven't even talked to a realtor yet. And I realized that he was right. I got really angry, obviously, but I realized that he was right in that aspect. And so I just called up a realtor that same day where the the market was where I bought where I was going to pharmacy school or where I went to pharmacy school and I just went out to see those properties and I put an offer on my what ended up being my first rental property on that same day. So that's kind of like how it all got started. I was inspired to get into real estate from my grandparents who bought a couple properties back in the San Francisco Bay Area back in the 50s when they were like dirt cheap. And as we all know the rents went up the appreciation went up like crazy. And not only was my grandpa able to retire early, but he was able to help cover part of my college tuition and that of my brothers as well. So that's when I realized that real estate investing was one of the best ways to create generational wealth. Loren Wernette: Welcome to another episode of Brick by Brick. Today I have with me Dr. Ryan Chaw. Ryan is the founder of Newbie Real Estate Investing, and we are going to talk about shared housing for student housing today. Ryan, thanks for agreeing to be on the show with me. Ryan Chaw: Yeah, thanks for inviting me on, Lauren. Loren Wernette: Yeah, so really excited to hear about this. So shared space and student housing is a very interesting topic. I know I hear a lot about it when I go to meetups in Raleigh, specifically because we have three campuses nearby. and student housing just is an interesting topic. Some people can't stand it, don't want to have anything to do with it because they remember what they were like when they were college students. that's my theory, anyways. And other people love it. So I'm interested to hear more about that. from you. before we get into that, I'd like to dive into a little bit about how you got started. So I think the story goes at one point you were getting harassed by your dad about how you always were looking at real estate, but you had never pulled the trigger on anything. And then you went out that day and put offers on something. You can you walk us through that story and how that turned out? Ryan Chaw: Yeah, for sure. So I was talking a lot about buying rentals and my dad called me out on it. And he said, Yeah, you talk a lot, but you're not actually doing anything, not taking any action to purchasing a rental. You haven't even talked to a realtor yet. And I realized that he was right. I got really angry, obviously, but I realized that he was right in that aspect. And so I just called up a realtor that same day where the the market was where I bought where I was going to pharmacy school or where I went to pharmacy school and I just went out to see those properties and I put an offer on my what ended up being my first rental property on that same day. So that's kind of like how it all got started. I was inspired to get into real estate from my grandparents who bought a couple properties back in the San Francisco Bay Area back in the 50s when they were like dirt cheap. And as we all know the rents went up the appreciation went up like crazy. And not only was my grandpa able to retire early, but he was able to help cover part of my college tuition and that of my brothers as well. So that's when I realized that real estate investing was one of the best ways to create generational wealth. Now I graduated in 2015 as a pharmacist with my doctorate degree in pharmacy and I just wanted to just accumulate as much capital as possible and put it all into real estate. So Back then my bank account was almost nearly empty because I was just funneling all that money into buying rental properties. Loren Wernette: Got it. So you went from not taking any action to basically getting talking to or getting crap from your dad and and buying something, which I I think is admirable. There's too many people that would just shut down at that and stop talking about real estate. And I also think there's too many people that just won't take action no matter what you say to them. so so good for you to actually go and take action. And you obviously turn that into great great action because you have amassed a decent sized portfolio. Can you kind of walk us through? what your portfolio is today, w what it looks like from a number of houses, number of units and and income. Ryan Chaw: Yeah, so I bought my first rental at the age of twenty-three. It was a two hundred and sixty-two thousand dollar house in Stockton, California, near my alma mater college, University of the Pacific. And what I stumbled upon was this strategy called the rent by the room strategy. I didn't know it at the time that it would create a lot more cash flow for me. But if you think about it this way, if you take a house and you add extra bedrooms by dividing up a living room in half or maybe turning the family room, the dining room into bedrooms. Then usually you can rent out each room for let's say 700 a month. And if you can get the place to five or six bedrooms, six bedrooms times seven hundred a month is forty two hundred dollars a month in rental income. And so for a house in you know back then was 200 to $300,000, the cash flow was pretty, pretty crazy. And so I continued to do that strategy, the rent by the room strategy, and bought one property per year. And again, just funneled all my money and reinvested all the cash flow into the next property. and now I have 14 properties. I was able to reach millionaire status at 28, and then I was able to actually retire from my pharmacist job at the age of 31 when the cash flow from the rentals replaced the pharmacy salary. And so so Loren Wernette: Got it. So Ryan Chaw: far right now I have 14 rent-by-the-room properties with 90 tenants. Loren Wernette: Very nice, very nice. And so just to be clear, so you left your W 2. You got you built this all while you had a W two and currently have left your W two and are just as an entrepreneur. Ryan Chaw: Yeah, so I started pharmacy in twenty sixteen and then basically in August of twenty twenty three I left pharmacy and haven't worked the pharmacist shift since then. Loren Wernette: Now when you started going down this path, was the goal to get it out of your W two or did you just get to the point where the rentals were making so much money it didn't make sense to keep doing the W or keep doing the the W two? Ryan Chaw: Yeah, I always had the goal. I read this book called Rich Dad, Poor Dad. I'm sure many people have heard of it, where it talked about buying assets and building passive income and additional income streams that will basically make money in your sleep, right? So I totally got, you know, radical about that. I I was really passionate about that. And so I just tried to buy as many properties as possible because I knew I didn't want to work a pharmacist job until I was 65. Or anything like that. In fact, we had this older pharmacist. I went up to him and I asked him, like, what do you like about working here? And he said, I hate working here. And I would have retired Loren Wernette: Ha ha ha. Ryan Chaw: years ago, but I have to, I I guess he had like three divorces, so he's like, I'm basically a slave and working to pay for all the divorces, pay my ex-wives. And yeah, the the unfortunate part about that pharmacist is he did retire around Six like his 60s. And then he, I guess after three months of retiring, he passed away from a sudden massive heart attack. So imagine working all those years at a job that you know he ended up hating and then only enjoy freedom for like three months and then passing away. That that really you know struck hard for me. I was like, I can't I can't live a life like that. I want to live a life where I get to choose what I do every day, you know, be able to Do what you want, where you want with whomever you want to do it with, right? Loren Wernette: Yeah, a hundred percent. So I'm also a student of the Rich Dad Poor Dad. And I read that in twenty twenty when COVID hit and I was a ladder climber and just changed my whole mentality. And all of a sudden my job that I love turned into something I hated really quick because I saw the light, you know, and the same thing, just so many Ryan Chaw: Yeah. It can't work yet. Loren Wernette: people in the office just going through the motions, just you know, like literally you talk to someone like, I got five years until retirement. I'm like, I don't want to live like that. I wanna l enjoy the work I'm doing. I gotta do it forty fifty, sixty hours a week. So Ryan Chaw: Yeah, exactly. Loren Wernette: Well, cool. All right. So let's talk a little bit more about your actual model. So walk me through a typical home purchase, what you're looking for, how you're setting a house up, and what can you kind of expect out of that house from a revenue and a workload standpoint? You know, we're just talking about kind of work-life balance, a workload standpoint on your first deal or even your fifth. Ryan Chaw: Yeah, so the rent by the room system is pretty simple. You just have to find the right college to invest there. Then you have to find the right property that meets the criteria I'll go over, and then then of course finding the right tenants. So the right college, I usually start off with the top college, US News top college report. And that report will have all the top colleges in like nationally ranked colleges in the state that you're looking at investing in. And typically I look for colleges with a lot of grad programs. So tip usually like healthcare fields, pharmacy, dentistry, MD, nursing, even like MBA, engineering degrees, law school, that type of stuff. And because these schools have a lot of like advanced degrees, the students that you get are gonna be really a lot of them will be really focused on their studies. Imagine if you're going for a doctorate degree, you're not gonna be okay with your housemate throwing a wild party or anything like that. Right. So that's kind of where I started as I invested near my alma mater college and rented out to college, sorry, pharmacy students. so I continued using that criteria to pick my college. the second thing is of course finding the right property. So I use what I call the big criteria, B-I-G. B stands for big, so you want the property to be At least 1500 square foot or more, because that's when you can get it to five or six bedrooms. I use this thing called the rule of 300. So you divide the total square footage by 300, and that's how many bedrooms you can usually have at the house. So 1500 square foot divided by 300 is five bedrooms. And so, you know, I I wanted to get to five or six bedrooms because I can rent out each room for let's say 700 a month typically. And so 700 times six is you know forty two hundred dollars a month in rental income. And that's what gives you a really strong cash flow, especially when your mortgage payments may be like two thousand a month. Then usually you'll have like over two thousand a month in cash flow. or I would say over eighteen hundred to two thousand a month in cash flow on a typical rent-by-the-room property. I stands for inviting neighborhood. So you want to be in a safe neighborhood. A lot of the parents of these college students, they want their student to feel safe and be able to walk home at night safely. You know, if there's a lot of trash everywhere and a lot of homeless walking around, the parent will take one look at that and they'll say, I that's not for my kid. and so you have to really figure out where the safe neighborhoods in the area. A lot of times I go to reddit.com and I'll just type in best places to live off campus and that city or the college that I'm investing in. And basically Reddit's like word of mouth. So you If you think about college students and they're looking for a place to stay, they usually talk to the upperclassmen and ask, hey, what areas are safe around here? And so that type of word-of-mouth talk is all on Reddit. And that's where I go to find what specific neighborhoods are named frequently for where to stay for graduate student housing. and then G stands for geographically located nearby the university. So you want to be as close to the school as possible. proximity is so important because, you know, let's say a student has an 8 a.m. class, most students they'll wake up at like 7:45 a.m., roll out of bed and and just walk to class, right? Or drive to class. So I try to be within a five to seven minute driving distance of the campus or within a walkable distance, like I would say within 10 to 12 minute walk if possible, if there's neighborhoods very close to the school. with that being said, if there's like a shuttle stop nearby. That works as well. If there's a shuttle that, you know, maybe a five to ten minute shuttle stop to school, then I would invest there as well. Loren Wernette: Got it. Makes a lot of sense. So for the your three hundred rule, like how does that work with shared space, living room, dining or kitchen, dining area? because if you have fifteen hundred square feet turned into five bedrooms, that leaves no room for the shared space. Ryan Chaw: Yeah, so every house I do have one nice, beautiful shared space, a common area, but there's only one that's needed. And the usually houses that are fifteen hundred square foot, they will have a dining room, a living room, and maybe a family room, maybe even a bonus office space, right? And so typically I'll take like the dining room and the family room, turn those into bedrooms and leave the living room as the common space. And we're in the era of Netflix and streaming and and YouTube. And so most students, they don't even know what cable means. You know, what is cable TV, right? they they go on their laptops and they stream movies nowadays. So students like to really hang out in their rooms. So the rooms are kind of like the new common space for them, or the new hangout for them. so a lot of them, they don't even if they have common space, they don't even use it. that's what I've noticed. So because of that, you can turn most of those common areas into bedrooms and just leave one nice one left for them and and that's fine. I've even had people who turn garages into the common space. kind of like an Airbnb, right, where the garage is nice and it it's got a pool table in there or ping pong table or whatever and that becomes the new common space. Loren Wernette: Got it. Now are these spaces like a rent by the room where you've got s five strangers in a house, or are these groups of friends that are renting, or is it a mix and match? And if it's r strangers, are you involved in any of the enforcement of hey, make sure you're doing it, you know, cleaning up and you're not making it miserable for the other tenants? Ryan Chaw: Yeah, that's a great question. So I typically prefer and I prioritize groups of friends who want to rent out the whole house. So a lot of times we'll get like a baseball team. Recently we had a group of 12 baseball students who sign a two year lease with us for this duplex we bought. It's I bought it for 367,000 and it's rented out to 12 baseball students, about 700 a piece or 650 to 700 apiece. And so that's renting out for $7,360 a month on a house I bought for $367,000. And so if you can get like these teams in place, like a swim team, I've had tennis teams, I had baseball teams, I've had basketball teams, I've even had, you know, groups of pharmacy students or dental students all stay in the same house. then that's great because they kind of self regulate, they're all friends, so they feel better more comfortable communicating with each other if somebody left dirty dishes in the sink, right? They basically self-regulate and keep the place you know, sanitary and clean for the most part. And I do do once a year deep cleaning. So everyone has their place clean, you know, right before they move in and then right after they move out, for example. and then in between it's kind of up to them. So one thing that I do for let's say they are individuals and they're you know, moving into the house together and they're kind of like strangers to each other. What I do is I offer there's something called the that I use is called the head tenant program. So I'll assign a head tenant for each house and that head tenant, they get $50 off the month's rent every single month for their entire lease, provided that they take on three responsibilities. The first responsibility they take on is coordinating among the other housemates to keep the place clean and in a sanitary condition. And worst case scenario, if no one's cleaning, they volunteer to, you know, be taking out the trash and doing the chores. and again, they're getting paid for this, right? They're getting $50 off the rent. So it's like, okay, well, at least I'm getting paid to do this, take on this responsibility. Second responsibility is to help resolve tenant versus tenant disputes if those arise, like housemate conflicts, they're to be there to kind of try to mediate that conversation. And then the last one is to give towards. so they not only get the fifty dollars off, but every tour that they do, we get them twenty-five dollars per tour and another twenty-five dollars if they can convince that person to sign a lease with us. So basically they get first dibs on doing all the tours for the house. So they get kind of that that as a perk as well. So that's kind of like another way to empower your tenants to take on those responsibilities around the house to make sure everyone's in a comfortable living. situation. Loren Wernette: Yeah, I I like that. It's a it's a good idea to just kinda help them police themselves. And you mentioned your leases. Are those aligned with the school year or those full year or those month to month? How do those typically work? Ryan Chaw: Yeah, so the school years usually start in August, right? So I usually do an August to August one year lease with the option of subletting, usually like during the summer to summer school students. And we offer to help them find summer school students as well because you know our our listings always on Zillow. We we just keep our listings up so that we collect a wait list of students who are interested in moving in later. So yeah, that's usually not too hard of a process to find somebody a subletter. Well, with that being said, it's already cheaper to rent $700 a month and stay 12 months versus paying $1,200 a month plus a meal plan plus having to pay for the parking permit and live on campus. So students save a ton of money with us. I think I did the math and it was like over a four-year period, they could be saving like $40,000. So we're saving these students a a a crap ton of money by living with us off campus and still being very close to the their classes. so a lot of students, you know, there's just so much demand for it because of that fact. these, you know, students are are able to, you know, keep a lot of more money under their belt, right? so yeah, it's Loren Wernette: Yeah, makes sense. Ryan Chaw: a it's a really high in demand market. Loren Wernette: Makes sense. I wanna I go back to one thing you said. So earlier you said you ought to go to colleges that are focused on the professional degrees, right? And then you say, I like teams and stuff. And I would think that I mean maybe I'm wrong. I would think that a group of friends that all share one house are more likely to party and do stuff than a group of individuals that don't know each other. Do you see that Ryan Chaw: Yeah. Loren Wernette: or? Ryan Chaw: I would say like if you're renting to a fraternity, be careful which fraternity you rent to. Some of them are known to be more like party fraternities versus like service or professional fraternities. so definitely Loren Wernette: Mm-hmm. Ryan Chaw: do your research there. with that being said, generally speaking, we do we do actually collect a pretty large security deposit and we also collect last month's rent ahead of time as well. So you know, if you have like Six individuals and they're each paying $700 for the security deposit. That's like $4,200. So if there is something that's broken, you can always go to the deposit. But the other thing I have is I always have parents as the guarantors on the lease. So basically if somebody you know breaks a hole in the wall or something like this, mom and dad are always on the hook and mom and dad always pay. because you know, you say, Hey, here's some pictures of what happened. and they're like, okay, yeah, we have to pay for that. So they they will send the money and the funds right away. so it's not something that I have to worry too much about, actually. and in any case, as long as the place gets a deep cleaning at the end of the year and it's fresh for the next set of students, I'm okay. If they feel comfortable being a little bit messier and you know they cause messes during the year, it's not too much of a problem unless they start attracting pests. you know, if they're attracting pests, for example, I I might actually build them back if it's something you know to do with the cleanliness of the situation. but with that being Loren Wernette: Right. Ryan Chaw: said, we have the head tenant who takes responsibility. And if it's messy, you know, three times in a row, we do we might revoke the head tenant status and they have to pay an additional fifty dollars per month. and so it's basically a three-strike policy. If we go in and we do like quarterly inspections. If we go in and the place is a mess, we will issue a strike. and then again, three strikes, you're out basically. and then we'll find a new head tenant. Loren Wernette: Got it. And so I think I read someplace you you have pretty high reserves that you hold for each house. Is is that the reason is to to make sure that all those little things are covered? And is part of that the deposits? Ryan Chaw: Yeah, definitely. So you definitely want to collect good at least one month's rent for security deposit. I also collect last month's rent, first month, last month, and security deposit. So technically I have like three months worth of rent before they even move in. And that's a way to kind of have leverage. Like if the tenant were to leave in the middle of the year randomly and they don't pay you anymore, well you still have two extra months of their rent. So If you find somebody if they skip town and you find somebody within the next two weeks, you actually make a profit. You know, you would that would be like a month and a half of profit if they just decide to skip town and not contact you and you find somebody to replace them. And so that's why, you know, most students they don't want to give up that two months of rent. so they're gonna, you know, abide by the lease rules, they will stay and and pay consistent rent, etc. and so having that high leverage position allows you to do that. Loren Wernette: Makes sense. So talk talk to me about so you're taking this three bedroom house, turning into a five or six bedroom house. Talk to me about permits, parking, you know, some of the other kind of city ordinance type things that might come along with having that many people in a house. Ryan Chaw: Yeah, definitely. So if you think about it, you know, a standard family might have two parents and three kids, so like five people at a house. We're not exactly putting more people than is normal for the house. It's still five or six people per per unit. and so in terms of parking, it's it's not too much of a deal, especially since student half the students actually don't have a car. Think about international students, right? They come into the US, they're not really gonna purchase a car just to, you know, you know, drive around campus. They they might rent a car every once in while, but most times they half of them won't even have cars. They will take a shuttle to campus, or they will bike to campus, or they might take an electric scooter. We actually do provide electric scooters for them to use for free. And we as long as they sign a a waiver for that. And so yeah, not all of them will have cars. And the part so I would say on a typical six bedroom house, we might have three cars, which is pretty typical for most single family homes, honestly. and then as far as the permitting, you do have to be careful. you have to make sure that there's no restrictions on unrelated tenants or occupancy limits, is what you call them. And so sometimes if you're buying in a city that does have limits, you might have to do what's called a change of use permit. where you change the use of the house to a rooming house slash boarding house. And then that process takes about three or four weeks. You just have to have the fire inspection and then the general home inspection. And then they basically sign off on it. And then you know you might have to pay a little bit higher of a fee. But you have the right to you know rent it as a rooming house. So sometimes that happens, but a lot a a lot of cities like especially like California for example, they don't have restrictions on around that. even like Texas, they have a a state law that abolished unrelated occupancy restrictions recently in 2025. So cities aren't allowed to do that anymore. I I'm not an attorney, of course. So always talk with a a real estate attorney in the area that you're investing in because every city is gonna be different. but that's one thing you wanna watch out for is restrictions around unrelated tenants and making sure that you're, you know, doing this legally. Loren Wernette: And that's something you would look at you look at before you purchase the home, correct? Ryan Chaw: yeah, definitely. Always research the city beforehand, to see if there's occupancy restrictions. Loren Wernette: So let's say that you find a great house, but there is occupancy restrictions there. what steps would you take to find out if you could get that permit that you need and how much of a pain in the butt is it gonna be to get it or how likely they are to issue? Ryan Chaw: Yeah. So I would talk with a real estate attorney. A lot of times the real estate attorney in that area will give you like a free 30 minute consult. And so you can use that to ask about, hey, is student housing like this legal? Am I gonna run into unrelated tenancy occupancy limits? yeah, it does a lot of times it depends on the city. If you have ability to do a change of use permit and maybe it's like a multifamily zoning and you you can buy in that area and then build build rooming houses or do rooming houses in that area. That's the easiest way. however if it requires a zoning variance, that's a little a lot more difficult. you have to usually have mail sent to your neighbors and have their your neighbors approve of this new rooming house. So that's what you want to avoid, obviously. a lot of attorneys they will have different advice. I've had attorneys that said And this is again not every city, but I've had attorneys say that like if you have one person on the lease and they kind of sublet to others, that might be okay. Again, it it it's very city specific. I've had attorneys say that if you get an Airbnb license, then technically or like a STR license, you know, technically you can have more people at the house. but it just really depends again on the city. And the best person to go to is to a r local real estate attorney. Loren Wernette: Got it. Have you been burned on that at all yet? Ryan Chaw: no, I haven't because I do the research ahead of time and I talk to like attorneys beforehand to ensure that yeah, we don't have occupancy restrictions. or if there are are restrictions then I can get a change of use per. Loren Wernette: Got it. All right. walk me through your prime method and what you're screening for and how you're doing things different than other landlords. Ryan Chaw: Yeah, definitely. So the third part of all this is so we said right college, right right property, and then the last part is the right tenants. So the prime method is a way to find high quality prime tenants. P stands for placement of advertisements. You want to place your ads where your target tenant hangs out. So for me, I target like healthcare workers, graduate students primarily, and so I will post on college Facebook housing groups because those are hyper specific for student housing essentially. there's also off-campus affiliate sites as well. so there'll be like yeah just like a dedicated off-campus site for people who are looking for off-campus housing nearby the university. So you'll want to post there as well because when I first started I I put the sign on the lawn saying call me for rent, you know, and that was the worst way to find tenants because I was a basically placing my ad in front of everyone and I got a lot of non-students calling me. So always go to where your target tenant is hanging out. R stands for review social media. So I look up their I ask for like a you know ID and then I will look them up on LinkedIn, Facebook profile, Instagram, etc. to see what's out there. And if I see any like smoking, drugs, pictures of them going to wild raves and all that, it might not be the best tenant to bring into my property. I stands for identify the type of tenant they are. So if they're addressing me professionally, hello, Dr. Chaw, I'm very interested in getting a tour of your property, versus saying, yo, what's up, Chaw? I'd love to chill in your crib or I need a place to crash or whatever, then that might not be the type of tenant I want to bring in. so really professional communication is important for me. And then stands for measuring responsiveness. So the more responsive they are, if they're getting their paperwork quickly back to me, usually the more responsible they are. If, for example, they had forgotten to pay rent and I send out a late rent notice, I don't want them responding in the next, you know, three weeks later and worrying about what if they don't pay me for those, you know, three weeks versus they respond right away and pay the late fee. so that's really important. And then E stands for ensuring proof of income. So you definitely want to make sure that they have three times the month's rent coming in as income. But students, there's like three ways that they can pay you. They can have a student loan that will pay cover room and board, like a federal student loan, for example. there's financial aid. so some of these people they have full ride scholarships, even. So I had one tenant who never moved into the house, never moved into his room at all, but he paid for the entire year. of rent, $700 a month for an entire year. And that was because well, one, he wanted to stay home to help take care of his grandpa, but he also signed a lease with us and then he said he had a full ride scholarship. And if he didn't use it, he would lose that money anyways. So it wasn't him paying Loren Wernette: Mm. Ryan Chaw: the rent. It was actually the scholarship that covered the rent. And so he's like, well we signed a lease with you guys and we want to, you know, be an integrity and all of that. We want we're honest people. So we'll pay you for the whole year. We're not actually going to stay there. And so that's how I ended up getting rent for that full year for the room without, you know, even them moving in. So yeah, ensuring proof of income is really important. I think the yeah, the third source is of course the parents could be paying the rent. And a lot of times the parents will be co signing on the lease. so that you you know, you ask for like the parents' bank statements to make sure that they have three times a month's rental income coming in, and then you should be good. Loren Wernette: Got it. So I want to push on two things here because I'm in the lending space and council, that's what my job is to deal with legal type things. And so as Ryan Chaw: Mm. Loren Wernette: I look at your process, I two pieces, viewing social media, right? You're yes, you're looking for whether party or not, but age, ethnicity, some of the other stuff is also on social media. And then also the income verification as it relates to family income, you know, that could touch on the familiar status. And so Have you talked to an attorney about that or run into any of this issues and and has it ever come Ryan Chaw: Yeah, that's a good question. So you never want to say in your ads like, you know, no children, obviously, because that would be discrimination against familial status. And I guess what you're talking about is the fair housing laws, right? you can't say things Loren Wernette: Mm-hmm. Ryan Chaw: like only young professionals because that's age discrimination. And you can't say females only because that's you know sex discrimination. So as long as you're not discriminating against those areas, generally student like saying you know this is student housing that's totally fine. In fact, a lot of these apartments will have large signs on their lawn saying, you know, student housing, call this number, right? so I've talked with and again it depends on the city probably. so obviously get a local attorney and talk to them. But if you say like student housing, that's generally okay to do. And then as far as screening, you can, yeah, you can do like a typical background check and see what's online. and then if usually honestly if you turn them away, yeah, it's it usually they just find a new a new property. Honestly, there's you know, there's other landlords out there, they don't take it personally or anything like that. because these are students and they've probably applied for a few places as well. Loren Wernette: Got it. So I I I would imagine that, you know, some sort of documentation on why people get rejected would be in at least again from the lending side of things, everything is risk risk mitigation. And so documentation Ryan Chaw: Sure. Yeah. Loren Wernette: and and having standard process like, yes, we look at their Facebook, but we only look at these things. We don't, you know, take into account their ethnicity or their race or if they have kids or any of that stuff, which is all could be seen on on social media. Ryan Chaw: Yeah. Yeah. Exactly. Mm-hmm. Definitely. Loren Wernette: Got it. All right, cool. Yeah, that I think that makes a lot of sense. I think it's really interesting or really good to have that solid platform of how you're gonna pick who your students are. I know a lot of people, not in your space, but just in the other space of, you know, do you have a pulse and you have some money right now? Okay, you're a great tenant. And then they wonder why things didn't go well six months later. Ryan Chaw: Yeah, exactly. You have to have like a standard process for you know, what you're looking for. and so again, I have that criteria for the right college, the right property, and then the right tenant. Loren Wernette: Got it. So you built this all while still working in your fifty hour a week clinical job. While you were building it, what was the first thing that broke or what was the first thing you hired for to take stress off yourself? Ryan Chaw: Yeah. And the first thing that broke was actually a sewage line, unfortunately. So I got this call basically two months into owning my first property, and the tenant said, dude, there's poop that's spewing out of the kitchen sink right now, and it's like all over the floor, right? And it's backing out into the showers and in the bathrooms. So obviously it smells like yeah, poop. So I had to go out and get somebody to sanitize and then get a plumber. And the plumber stuck a camera down the pipe and found that there were these big tree roots because we have these huge Loren Wernette: Mm. Ryan Chaw: oak trees in my backyard that were just like breaking into the pipes, the sewage lines. And so I had to replace the entire sewage line because it was broken in half by PVC. And it cost me $9,000 just to do that. I also found out that there was not a really strong AC system. So I had to replace that with a mini-split system. It cost me $15,000. And all in all, I lost over $30,000 on that very first property. So I realized that it I had to learn how to vet these properties a lot better. So a lot of inspections that I do will be like a sewage line, a sewage lateral line inspection, and that only costs like $200, $300. And that will save you t you know thousands, potentially over $10,000 for longer sewage lines. And so you want to do that like at every property that is older than the 1980s. but I also add on additional inspections for like HVAC potentially if the HVAC unit looks really old. I'll have an HVAC technician go out there, you know, maybe they'll check out the heat exchanger. they'll take pictures if there's like rust all over it, over the ex heat exchanger or whatever. and so they will be able to quote me how much it'll cost to repair it. I'll send that quote to the seller. And then I'll ask the seller to actually pay for it before we purchase that property. And so, you know, that's kind of the vetting process I have. other inspections you can add on as like the roof inspection. you can do a foundation inspection if you're worried about the flooring being uneven and shifty. what else is there? Electrical plumbing, for example. And so I might add on these inspections to thoroughly vet the property before I buy it. Loren Wernette: Got it. And so once you have the property and you're managing I sounds like you started out managing your own. You know, what at what Ryan Chaw: I did, yeah. Loren Wernette: at what point what how many units does it do you get to before you're like, Hey, I need to have somebody else manage these these properties for me? And maybe not just you, but anybody in in particular. Ryan Chaw: Yeah. Yeah. I would say well, so what I for me, I actually went all the way up to five properties before I hired my first person. And that first person was a bookkeeper because I found I was spending a lot of time keeping track of rent and utilities and checking if they paid or not. which honestly you can just use a a a good platform for that. There's like tenant cloud, there's what we use now is called Build Dium. And so there's like automated payments through that. And they'll also automatically tell them when rent is late and give them reminders and automatically charge the late fee and everything. but back then I was, you know, not as cognizant about the software. So I hired on a bookkeeper around property number five. again, before that I would use tenant empowerment, so I would have the tenants take on those responsibilities for reporting issues, etc. And then I started hiring on some VAs as well around there, sick the property five, six, and seven. so they the VAs took on the marketing, the they took on coordinating the tours, they took on also managing so any, you know, tickets that are maintenance tickets that are put in, they would respond to that. but yeah, I think all the way up until the fifth property, I was pretty comfortable still working like full-time shift as a pharmacist and then kind of managing this on the side. obviously it Loren Wernette: Got it. Ryan Chaw: depends on the properties you buy as well. If you buy like a hundred year old houses, those tend to have a lot more problems compared to some of the newer properties. and so it'll be a lot more maintenance intensive versus the newer ones. yeah, you might not get a call the entire year. You might get one or two calls the entire year. It won't yeah, it's not as bad for sure. Loren Wernette: So at one or two properties, what kind of time commitment are you looking at on a weekly basis? Ryan Chaw: I would say about four I would always put in at least four hours a week at the beginning just to get everything set up. you do want to do your research into the colleges, you want to research the housing demand in that area. you know, you want to see that students are like, it's so hard to find off-campus housing versus they're like, there's an abundance of it and you know, there's so many places I could live. yeah. So you you want to spend a lot of time making sure you get it right at first. but then once you buy the rental, you have students in, you're you have, you know, your place fully occupied, I would say it takes one to two hours a week or less to maintain. I I don't think it's like it kind of is in a way passive income. Technically it's leveraged income because you know you do spend some time. but it's it really doesn't take as much time as you would think once it's fully occupied and you're kind of just cruising along. Loren Wernette: Nice, nice. So let's I want to talk a little bit about the financing of these, right? Because you know I you you buy a property, you have a three bedroom, one bath, and you turn into a six bedroom, whatever bath, right? How is a bank looking at that? Or have you tried to refinance any of these? You know, if you go to sell one, are you tearing walls out? Like what is all of that? Ryan Chaw: Yeah, that's a great question. So buying is not an issue because they they won't look at the future like they don't care if you're gonna rent it out by the room in the future. It's just a standard appraisal, whatever. This is how much you know we're able to give you 80% loan to value. And so that's not an issue. The refinance is where you, you know, you might run into issues. So for a general conventional loan, you you know let's say you're still working your W-2 while you're buying these properties it's not too it it's it's okay to refinance it and if it's a student house they will take that income a lot of lenders will they'll take at least up to a lot of them will take at least 75% of whatever the total income is as long as you can show it on your bank statements and then some of them might want you to show it on your tax return. So refinancing at a conventional level a conventional loan is not too hard. But if you do a DSCR loan, which is what I eventually had to do because I have more than 10 properties, the the conventional loan will shut you off after 10 properties. So I had to do DSCR. DSCR has some specific rules around rooming houses. So there are a couple of lenders out there that do allow you to do a rooming house. What I would do is target pad split operators and ask them, hey, because pad split is a company that rents out by the room. And so ask them, hey, what lenders have you used? Because those operators, they obviously have a lot of them have had to refinance at some point. So they have lenders that are, you know, specific for doing rent out rent by the room. so that's what I would say in that circumstance. But typically for like conventional loan, it's it's not an issue again. Loren Wernette: Yeah, make makes sense. And from the DSCR, I think it would be interesting because you know you're gonna you're gonna get an appraisal, right? And it's gonna go off of income base, which is gonna be really high, and then it's gonna go off of comp base, which they're gonna look at the tax record, and they don't care how many bedrooms you currently have. They're gonna say, it's a three bedroom, and there's gonna be this huge discrepancy. And then it'll be really up to the appraiser on which direction they go as far as the actual appraised value that they give it. Ryan Chaw: Yeah, exactly. That's that's one thing you run into for sure. Because they look at the county records for how many bedrooms you have. one way I Loren Wernette: Yeah. And how Ryan Chaw: I I guess one way to make it easier, if you do have a group of students and friends, if they have like a master lease that they all sign, that makes it a lot easier for them to like qualify because it's like one lease. obviously since they're all friends, they're okay signing that one lease. and it it will make things easier for you to qualify if you're going the DSER route. Loren Wernette: Got it. And and have you sold any of your houses, have you dealt with that yet? Ryan Chaw: yeah, yeah. So I did sell a house and actually the investor preferred to have so I offered to take out the walls and stuff and they said, no, no, keep it as it is. I want the income. So they yeah, usually if you get an investor, they will even pay more than what the typical amount is for for buying that property. I've had that happen when I sold my very first property. I've even seen some properties where they bought it. like at let's say four hundred thousand or three fifty thousand and then they put in like twelve students and then they sold it as as like an income producing asset for like five hundred or five fifty thousand. So I've seen some people use that strategy where they will kind of flip a property but they don't do any renovation work really. They just literally fill it with students and then they sell it to an investor. So yeah. Loren Wernette: It's almost like a business flip where you you bring you buy a business and you increase the profitability and then you sell it at a higher multiple. Ryan Chaw: Exactly. Yeah, people do that. People definitely do that. And investors will bite because if they're making like four like I said, one of my properties is about four thousand a month in cash flow and you know they they pay five hundred K for it, they're like, Sh that's a good return for me, you know. Loren Wernette: Yeah. I mean you're probably in markets where the one percent rule it would be like a dream and then you'd giving them something that's at two or three percent. So no and Ryan Chaw: Yeah, exactly. Yeah. Loren Wernette: and what about insurance on these things? Ryan Chaw: yeah, so actually I I mean I always tell the insurers that this is what we're doing with the property. It's a college town housing. They generally don't care. I haven't had any differences in terms of insurance for college student housing versus like regular housing. I would say like if the students are worried about items being stolen and things like that, they can always get their own renter's insurance. But there hasn't been, again, any really difference with the insurance. I do add on umbrella. insurance though. So up to a million dollars in liability in case like one of the students sued me or whatever. It does cover all the way up to a million dollars for a lawsuit and they will use their own attorney and everything. the insurance will use their own attorney that is. So I highly recommend adding that on for any any rentals. Loren Wernette: I highly recommend general liability and insurance for anybody that has any rental properties. So just good state. Ryan Chaw: Yeah. For sure. Yeah. Loren Wernette: I mean, it's it's so cheap for what you get out of it, right? A couple hundred bucks Ryan Chaw: Exactly. Yeah. Loren Wernette: a year and you have peace of mind that someone breaks their ankle doing something stupid on your property, you're not gonna lose your house. It's just Ryan Chaw: Yeah. Loren Wernette: it's not worth not having. Ryan Chaw: Right. And the best part is again, the insurance company will take care of everything. Like they'll hire the attorney. You don't have to pay the attorney. Versus, like, if you don't have that, then like let's say you just have an LLC without the insurance, umbrella insurance, you still have to pay for your attorney. and so that's why I I believe in having both protections, the LLC and the umbrella insurance. Loren Wernette: Yep, 100% agree with that. So, so I I did a little bit of research before this and was I was looking at high school graduation rates because I wanted to kind of look at the long term, you know, the viability of universities. And you know, two twenty twenty five, we kind of peaked in the United States of high school graduation rates. And so as you look at this market, I know right now you said there's a lot of students looking for housing. What do you see as the future of student housing as less people graduate high school, less people go to college? College becomes either less needed based on AI or other things, or it's just not something that people can afford to do with its rising costs. Ryan Chaw: Yeah, that's a great question. And this goes back to why I target the schools I target. graduate students housing, sorry, schools with graduate programs. So the like pharmacy, dentistry, md, because those degrees are never gonna go away. There's always like in fact, there's always a shortage of doctors. There it's like a chronic shortage of MDs. And so those professions are always going to do well. There's always going to be people going to pharmacy school, dental school, and you can't learn that stuff online. Like imagine a physician who was trained online how to do a surgery. It's just it's not gonna work. You gotta have hands-on, right? And yeah, a lot of these colleges that I invest there, they have all that hands-on training that just can't go away. The other thing is I think this trend you know, if it does come to fruition, will disproportionately affect the kind of like more community colleges and the you know lower degree type colleges versus the professional colleges. The think about like Ivy League schools, those are constantly, you know, usually it's constantly increasing enrollment because they're just so popular. and I always invest I always check the enrollment trend before I invest in the college. And like the colleges like the one that I invested there, the first one I did was has been around since eighteen fifty nine. And it's been increasing enrollment trend ever since. Like twenty twenty six I think was like a a peak year for enrollment, for fall enrollment. So yeah, you just invest in the right colleges because those are affected differently compared to like, you know, community colleges, for example. Loren Wernette: Got it. And so you're focusing right now student housing. Are there other industries or other segments that this could be applicable in as well? Ryan Chaw: yeah, definitely. So I also invest nearby top hospitals and clinics. So one of mine is nearby Case Western, but it's also nearby the Cleveland Clinic. And so I get a lot of healthcare workers as well. So people who are doing like a residency, usually like a medical residency, will do like a three-year residency or three-year fellowship. And so they'll be there for quite some time. And they're also one of the best tenants possible as well, because they're focused, maybe they're running surgeries or whatever, and then they get home and they shower and sleep. And you know, they that that's all they do. Yeah, exactly. Loren Wernette: They're never there. They're never there. Ryan Chaw: They're never there. just like that's that again, that student who signed for the room and never moved in. so yeah, same thing. I I really focus on being there by top college hospitals as well. usually hospitals with 400 beds or more. because those employ a lot of local healthcare workers, maybe even travel nurses. and so like maybe during the summer I might have some travel nurses sublet under my students. so yeah, if you can be nearby both a good hospital and a good college, that would be great. In fact, a lot of the college students who are in the medical degrees, they will rotate it through the local hospitals as well. Loren Wernette: Hmm. Interesting. So if you're if you've got somebody that's interested in doing this, what's the kind of person that should not do this type of investing? Ryan Chaw: I would say somebody who isn't fully committed, you just you kind of have to be fully committed to real estate to do well in it, because if you're second guessing yourself all the time, then it's gonna be very hard for you to be successful. you kind of just have to say, I'm gonna make it happen no matter what. And even if there are mistakes that are made, and even though obstacles come up, you'll find a way around it. So there's a really good book out there called The Obstacle is the way. by like Ryan Holiday that I recommend people read if they're you know stuck and they feel like they're they just aren't making money in real estate or whatever. but if you do the rent by the room strategy obviously your your revenue is going to already automatically be much higher compared to a traditional rental. Typically it's about double the the revenue on a rent by the room property versus a traditional rental so it gives you that additional cash flow and cushion So that, you know, if there is something that happens like the roof, you need a roof replacement and it costs you fifteen thousand dollars or ten thousand dollars or twatever, you can go ahead and pay for that and not have to maybe it's like three to five months worth of cash flow and it's not gonna like totally destroy your investment. Loren Wernette: Yeah. What are the the big watch outs or the two or three big things that people do that make them fail in this? 'Cause it I mean, it seems fairly straightforward. Ryan Chaw: Yeah. I would say buying older houses is definitely something I ran into. I bought a hundred-year-old house and I had so many issues with it. but if you check the six key systems, so the six key systems are the roof, the foundation, the electricals, the plumbing, the sewage line, and then the HVAC. If you check those six key systems and make sure they're in good con good condition, they're not near the end of its life. You know, typically a roof and HVAC might last twenty-five to thirty years, for example, depending on the type of of, you know, roof or whatever. basically if you check those and vet them and and make sure that you're not gonna have to replace them, then you'll be in good shape. Or if you do have to replace them, have this like send a quilt to the seller and ask them to replace it before you close on the property. And I've had that happen several times where the seller would replace the whole AC for like $8,500. And we, you know, we didn't have to pay for any of that. So definitely do that. The other thing I would say is buying in the right location. Because if you buy in one of those neighborhoods that is not a desirable neighborhood, like it's a lot of crime, students don't want to stay there because it's just the bad area, no matter what you do, if the house looks, you know, really, really nice and nicely modern renovations are added to it, whatever. It still doesn't matter because if you're in a bad location, you're just not going to get tenants who want to stay there, at least high quality tenants that want to stay there. So location is the one thing you can't change. Be very careful where you buy. Loren Wernette: Yeah. And to an early comment you made, I think making sure that the ordinances don't prohibit you from doing what you're trying to do, right? Ryan Chaw: Exactly. Yeah. Mm-hmm. Loren Wernette: Got it. So we're getting close to the end here, Ryan. And I wanted to give you a chance to bring up anything we hadn't touched on, and we covered a lot of ground. I think we you gave us a really good overview of the Rent by the Room strategy and what you're doing. so you know, as we wrap up here, what's something you want to leave the audience with? and how can they reach out to you if if they are interested in in what you're talking Ryan Chaw: Yeah, I mean, I think this is one of the best methods, the rent by the room strategy to get started in today's market with high interest rates and high home prices. You still make a a lot of cash flow with this. and you know, I'm constantly buying. So I you know, that's why I think it's one of the best beginner strategies to get started with. I have a free PDF on how to get started using rent by the room strategy and and kind of co living. it's at w dot newbi real estate investing dot com slash guide. That's www. newbie real estate investing dot com slash guide and newbie is spelled N E W B I E. It's the single best resource I can give you that goes over some of the mistakes I made, the lessons I learned when getting started in real estate investing and how to, you know, use the rent by the room strategy to maximize your cash flow. Loren Wernette: Awesome, Ryan. I will make sure that those links and that information is in the show notes. So if anybody's interested in talking to Ryan about this strategy, learning about what he's he's doing or getting into this, I highly recommend you take action, do something, and improve your life. And Ryan, thank you again for being on the show. You you've been a great guest and I've really enjoyed talking to you and learning about your strategy. and I hope that a lot of people reach out and check out your course. Ryan Chaw: I appreciate it as well. Thank you, Lauren. Loren Wernette: All right. And to everybody else out there, thank you again for your time. If you got any value out of this or you know anybody that would get value out of this, please share the podcast. That's how we grow, that's how we keep doing this, keep getting interesting guests like Ryan on so that we can share more information and get more people off the W-2 treadmill. So until next time, thank you. Ryan Chaw: Yeah.