How Investors Are Creating Half-Price Starter Homes Through Multifamily Conversions

Jerry Miller (00:00)
we buy distressed multifamily properties. We convert them into really nice places to live and then we sell them as starter homes. And in the markets where we operate, Portland, Seattle, D.C., we are typically selling a condo, a starter home.

at half the cost of the average starter home.

Michelle Tack (01:50)
I’m Michelle Tack and I am the podcast leader for today’s Real Estate Pros podcast. And I have a great operator, Jerry Miller with me. Jerry, say hi. Jerry, as you can probably tell by his shirt, is based in Florida. I’m really psyched to have him here because

Jerry Miller (02:00)
Hey!

Michelle Tack (02:09)
it’s been a in preparation for this podcast, it’s been a very interesting conversation for those people that may not be from your world of, you know, finding these properties of multifamily in the size from eight units to 12, as well as, you know,

can you unpack that for us and talk about your business a little bit and the markets you serve?

Jerry Miller (02:37)
Absolutely,

absolutely. backing up, our investment thesis and sort of a 20 second wrap is

we buy distressed multifamily properties. We convert them into really nice places to live and then we sell them as starter homes. And in the markets where we operate, Portland, Seattle, D.C., we are typically selling a condo, a starter home.

at half the cost of the average starter home.

And so our target avatar really falls into sort of three groups of people. ⁓ The first primary group was families, right? 30-somethings with kids that are probably renting today, and they have no opportunity to afford a house because they’ve been locked out of buying a house. They might make a decent income, but it’s not enough to have 20 % down and make the monthly payment.

So we offer them an opportunity, a path to home ownership that doesn’t involve paying the price of a starter home price. ⁓ So that’s kind of the high level. There’s more to do, but I’ll give you a chance to follow up with questions.

Michelle Tack (03:40)
Sure,

and do you operate in specific cities and you mentioned those, but what attracts you to those cities? Why did you decide on those cities specifically? I live close to DC, about four miles outside and I can, I know the reason why, but ⁓ why about the other ones? just generally.

Jerry Miller (03:46)
Yes.

Okay.

People, people.

So my partner’s John Lane. He’s from the Portland, Oregon area. ⁓ I actually lived in Portland years ago. I know the market really well. And we started there because that’s where the network was, right? We have GCs, we have realtors, we have the people that we can count on. We can pick up the phone, get something done. ⁓ We have friends in Seattle and DC.

who we can trust to be our asset managers and therefore we’re actually working with them right now to identify some new buildings that we can potentially acquire in their market. So the real reason that we are in a market is because we have the right people. There’s no shortage of markets, ⁓ Chicago, Denver, Atlanta, where people have actually already reached out to us to potentially partner with us, but we’re such a small organization, we can’t simultaneously be looking, you

in six or seven different markets. It is our hope to partner with people and to grow doing this business because we believe that every major city in America needs more affordable housing and this is a very viable way to do that.

Michelle Tack (05:51)
That’s awesome. When you think, what I was also impressed by is that you’re very, your buy box, know exactly what it is. You know that it’s eight to 12. You know that, ⁓ you know, you need boots on the ground ⁓ of those connections ⁓ and that they are in a situation where ⁓ you can do improvement. Maybe they’re a distress property or what have you. So you can make the numbers work, which is all,

Jerry Miller (06:05)
Mm-hmm.

Michelle Tack (06:20)
amazing. Can you talk to me about how you are operating in a smooth and efficient manner, given the fact that, you know, there’s a lot of moving parts here, right? There’s different cities, there’s different environments. What are the things that you are utilizing, whether it’s infrastructure, people, what have you, to keep the engine running?

and identifying sourcing and making your business profitable.

Jerry Miller (06:49)
Wow, lots to unpack there. Let me get started, I guess, one at a time. So we do things smoothly. We typically like to separate closings by about six to eight weeks. A closing is a little bit like pushing a domino over. You know, there’s 37 dominoes that are all going to fall behind that first one. So you really need to be prepared for domino number 17. that’s a $50,000 roof, you need to know that you’re going to have the capital when you need the capital in order to execute whatever the renovation strategy is.

What we try and do before we actually close as we lay out, you know, what is our financial pro forma, who are our key people, like our general contractor is a key person and our property manager is a key person. Much like traditional multifamily, you have to have the right people in the organization or that you’re, you know, service providers that are offering that service and they need to be trusted advisors where we can count on their expertise. ⁓

Michelle Tack (07:42)
So

Jerry, let me just interrupt you there. So you have all those people aligned before the close, is that right? So you’re pre-stoking the fire, you’ve already got wood in the back, you know you need more wood, you’ve already got that organized so that you can pull the trigger once you’re done and begin to work. Okay, go ahead.

Jerry Miller (07:48)
Yes, absolutely, 100%.

100%, 100%.

Waiting to close is too late. There are things that need to start immediately. ⁓ Each locale has different rules around, so ⁓ Oregon’s a little different. If you buy a property and you want to kick everybody out, you got to give them four months. You have to build into the plan. Now you can buy them out. Cash for keys, you can say, hey,

Michelle Tack (08:05)
Yeah, right.

huh.

Yep.

Jerry Miller (08:28)
you know, we’ll give you some extra money to move out early and there’s certainly nothing wrong with that. And that actually can help the person that wants to move somewhere else. We, course, offer them ⁓ to buy the unit that they’re in, but we do need them to move out while we renovate it because we typically do new kitchens, LVP floors, all of the above. So it’s not the kind of job that we can do while somebody’s still living there.

Michelle Tack (08:50)
stuff. What about besides having people ready, are there certain key technologies you have to have to make sure it’s running like your software, what have you, that’s keeping you, because you’re just, you’re a small group right now, you know, it’s you and your partner and then people that are doing work in the cities and partnerships that you have today. So you have to be really focused and tight.

Jerry Miller (09:04)
Right.

Michelle Tack (09:16)
How do you do that with some of the infrastructure you’re using?

Jerry Miller (09:53)
⁓ Great questions, Michelle. And I can’t say enough about AI. It is mature enough now where it can really add some value. So if you’re familiar with the term agentic AI, it just simply means that you have different agents that can perform an individual function. And then you can have an AI tool, we call them Albert, who then can call those individual agents. So we have an agent that does

Michelle Tack (10:16)
Mm-hmm.

Jerry Miller (10:18)
walkability score. That’s a very desirable thing in the Portland area. How close are we to a major grocery store, to the rail, like all of the above? ⁓ We have another agent that looks at comps. In fact, we’re looking at an API with Redfin where it can really lean into more information about. ⁓ So with condos, one of the things that people miss sometimes is they just look at price. But if the homeowners association

Michelle Tack (10:23)
Yep, that’s

Jerry Miller (10:45)
I’m sorry, the condo association fee is $700 for one and $300 for the other. Well, that $400 makes a very big difference in your total monthly cost, the total cost of ownership. Right. So we’re working on an AI model that will do what we call a total cost of ownership or what their monthly expense actually is so that they can look at our unit. We really labor to reduce the HOA fees as much as we can. We’re not going to stick our new starter home buyers with a

Michelle Tack (10:54)
Sure, it’s huge. ⁓

I’m

Jerry Miller (11:14)
with a roof, for example, that needs to be replaced in 18 months, right? We’re gonna go ahead and replace that roof. We’re gonna give them a new kitchen. We’re gonna give them new baths. Like most of the buildings we buy, you know, the vintage is like the 1970s. And so it’s very unlikely that they’ve been fully renovated because the building we’re gonna buy is gonna be a little bit more affordable and needs to be renovated.

Michelle Tack (11:35)
Yeah, understood. When you look at every operator that I know that I talk to, I’ve talked to hundreds, ⁓ has an, and even in any business, has had a situation where a deal started going sideways. And it doesn’t have to be a deal in this example, but we’re able to pivot.

Jerry Miller (11:52)
Mm-hmm.

Michelle Tack (12:01)
and recognize, uh-oh, we’re in trouble here for whatever reason, maybe our fault or maybe it doesn’t matter whose fault it is. The deal is in trouble. And we were able to recognize that and pivot and have a desirable outcome or if not a desirable outcome, something that you learned through that then made your business stronger going forward. Can you talk to that, Jerry?

Jerry Miller (12:25)
We haven’t had one completely go sideways, but to your point, the answer is have more than one exit. Our exit plan is to sell to an individual starter home, but what’s plan B, what’s plan C? ⁓ You asked earlier about my network. I’ve got a network of friends in commercial real estate that have just proved to be invaluable.

Michelle Tack (12:32)
huh, huh.

Jerry Miller (12:48)
Right. We’ve got a good friend that does short term rentals and there’s actually a building where the sales is super slow right now that it isn’t actually a starter home asset. It’s an asset from my from my partner’s previous company before starter home. But we’re talking about, well, what if we just sell it to to to the, you know, the short term rental opportunity? And so there are different ways to convert real estate into cash if you can if you can find the creative exits. ⁓

Michelle Tack (13:14)
Absolutely. Yep.

Jerry Miller (13:16)
There’s another deal. It’s actually a friend of mine that’s a land developer. They created some really great looking townhouses that are fairly close to the Charlotte airport and they’re just selling very slowly. So, they’re… Well, right now, it’s a buyer’s market, right? The costs are up, uncertainty is up, so people are not in a euphoric mode to buy a house. At the end of the day, I know I bought my house,

Michelle Tack (13:26)
No, nice.

Why do you think that is? Why do you think they’re selling this stuff, like,

Jerry Miller (13:44)
⁓ the house I’m in now in 1990, in April of 1990, and the interest rate was 10 and a quarter. Was that a good interest rate? No, but I needed a house. I feel like sometimes we miss that you don’t just do things when it’s convenient, you do it when you sort of have to. But to the point about the deal is,

Michelle Tack (13:49)
Wow. That’s… I know. Yep. I’ve had a similar experience with my first film also.

Jerry Miller (14:10)
you need to have different exits. And I think the short-term rentals is a great possibility. ⁓ Once we convert to condos, you could still rent them out as apartments if you so chose. That would be kind of ⁓ an exit of last resort, right? Because we typically ⁓ have investors that invest with us. We want to cash them out at a certain time. And the rental thing, unless we’re selling it to somebody that’s renting.

We’re not cashing out those investors. So that creates that sort of long tail that we kind of want to avoid. Our model is about velocity. Get in, renovate, and

Michelle Tack (15:26)
We talked about threats to business before, right? To your business. And again, you know, we talk about, you know, the fact that it’s a high cost for people to acquire a home today. Do you see that going forward or are there other threats to the business that you think about overall in terms of, know, not necessarily exit plan, but keep in mind in terms of how you’re operating as you become more successful.

Jerry Miller (15:32)
Mm-hmm.

Right.

Sure. mean, risk assessment threats, it’s kind of a similar thing. In our business, the renovation budget is king, right? It’s one thing to try and estimate. It’s another thing when you start tearing into things and you find out, hey, there’s a water heater under the kitchen cabinet. That’s one of my personal pet peeves. They put one of those short water heaters in the corner of the kitchen, the dead space. They’re impossible to replace, right? And so you look at that thing and you go,

Michelle Tack (16:11)
Hahaha!

Jerry Miller (16:22)
Hey, that thing’s 10, 12 years old. Let’s just replace it because it’s going to be such a hard thing to replace for the next guy. ⁓ But back to the point about ⁓ risks. So one of the bigger risks is that you get that renovation budget on the nose or very close to. We use a 20 percent reserve sort of just in case. But we also really like our general contractors who we’ve used, who have literally come in exactly on budget. Right. So that’s that’s our.

Michelle Tack (16:49)
Awesome.

Jerry Miller (16:50)
That’s my greatest selling point to the GCs we work with is if you’re on budget and on time, like, I don’t know what gets better than that, but we do allow for that 20 % reserve in case something comes up that we didn’t anticipate.

Michelle Tack (17:00)
Yep. That’s

smart. Last question I have before we conclude is, what do you see in the future for you? Expansion, ⁓ other markets. Can you talk to that a little bit?

Jerry Miller (17:13)
We would love to go nationally. For any of your investors that are listening, if you have a heart for affordable housing, then we are interested in partnering with you. ⁓ My partner and I would love to do this for three to five years, and we’re thinking about retiring somewhere after that, but we want to see this vision continue to grow. Every major city in America needs more ⁓ affordable housing. ⁓ The statistics are off the chart how good it is for a community to have

homeowners instead of renters. And there’s just so much data out there that we know that we’re doing something good. And we feel very good about it every day when we get up and we go, hey, this is six more homes, this is 12 more homes, whatever that number is, we feel very good about what we’re doing. So ⁓ nationally, I see the need all over the country, but we just can’t take down the whole country all at the same time.

Michelle Tack (17:44)
so lovely.

Sure. ⁓ You’ve been a wonderful guest. One of the traits, and this isn’t just for me, but when I see operators that are doing really well and have all the subject matter expertise, ⁓ the ones that really over the long haul do the best are those that are being of service first and the money second. That’s not to mean that you’re not compassionate capitalism, right?

Jerry Miller (18:09)
Thank you.

Michelle Tack (18:32)
You’re doing something, you have a return. We all have to feed our folks. We all have to pay our mortgage. We all have to do something. We don’t get out of here unscathed, even if you’re born with a silver spoon in your mouth. But I want to thank you for your service, because it’s always heartwarming to talk to people like you that are doing this. ⁓ the group that you welcome, for the folks that are online that may want to get in touch with you,

Jerry Miller (18:41)
Great.

Thank you.

Michelle Tack (19:00)
Could you give your contact information ⁓ before we conclude?

Jerry Miller (19:04)
Sure. ⁓ There’s a couple of different ways to get a hold of us. If you want to find out more about our company name is Starter Home, ⁓ our website is StarterHome.fund. So I, do need me to spell that out? StarterHome.fund, all one word, dot fund. ⁓ My name is Jerry Miller. ⁓ You can book calls with my partner and I from our website, but you can also reach, ⁓ probably email might be a good way. These days I don’t answer my phone from people that are not already in my phone book.

So email would be [email protected]. You can find me on LinkedIn, although Jerry Miller is a fairly common name if you type in Starter Home My partner is John Lane ⁓ and both of us, ⁓ well, we call John the Founder, we call me the CEO. I’m more of the operations guy and John’s more of our visionary guy. ⁓

that it’s a really good fit for the two of us to lead Starter Home.

Michelle Tack (20:01)
Great. You’ve been wonderful. Thank you. Continued success. And for the folks that are ⁓ on the podcast today that have not subscribed and find this content of value, we encourage you to continue subscribing for those that are ⁓ subscribers as well. We always welcome ⁓ additional content and thank you, Jerry, for participating. Good luck. Wishing you the best in the future.

Jerry Miller (20:04)
Thank you.