The Truth About Passive Income, Landlording, and Rental Properties

MJ Berst (00:00)
I took Dave Ramsey’s financial peace literacy thing like three times. and now I tell people I’m like w my friend Eric actually said this, so I have to give him credit, but he’s like, anybody who does not know how to manage their finances desperately needs to listen to Dave Ramsey, and anybody who knows how to manage their finances desperately needs to stop. And I like that because

Cody Crabb (00:25)
That’s really that’s that is legitimately pretty good advice. Yeah. That is Yeah.

MJ Berst (00:29)
Yeah, right.

‘Cause you need the foundation.

Cody Crabb (02:04)
Welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb, and today I’ve got MJ Berst with me. MJ is a Milwaukee investor focused on value-add small multifamily, especially duplexes, and she brings a really practical lens to what real estate looks like for normal people.

kind of building one property at a time. So today we’re gonna talk about small landlord realities and the financial literacy that comes with that and what it takes to build wealth without this mysterious passive income fantasy from eight figure operators. So thank you thank you so much for hopping on with me today.

MJ Berst (02:43)
Thanks so much for having me, Cody. I’m really looking forward to this.

Cody Crabb (02:47)
Same, same. so to start out, I’d love to hear the story of how you got into real estate and specifically how did small multifamily in Milwaukee kind of become your lane?

MJ Berst (03:01)
Yeah, that’s a great question. So I’ve actually talked about this at a few different places. But long story short, I ran into an ex-boyfriend at a bar one night and he was fairly drunk, but he was very excited to tell me that he had just bought a duplex and he told me that I should buy a duplex and I was like, You’re drunk, but we can maybe talk about this down the road at some point.

And we did. We reconnected and I kind of just picked his brain. I was like, So why a duplex? Like what’s your angle here? He’s like, Well, he’s like, Honestly, if you can get a good tenant, they’re gonna pay a bunch of your mortgage and I was like, yeah, okay, I can track and like but

Cody Crabb (03:42)
The

old house hack, yeah.

MJ Berst (03:45)
But I was like, but what about like landlording and how do I collect rent and all of that stuff? And he’s like, I don’t know, I just kinda figured out as you go.

Cody Crabb (03:53)
I’m not gonna lie, that might be the being a being a little bit tipsy might be the perfect time to have that conversation ’cause it’s just kinda like, don’t worry about it. Yeah. And then you can figure it out later. Yeah, that’s cool.

MJ Berst (04:04)
So he ended up connecting me to his realtor and his mortgage lender and I you know, I basically got the ball rolling and about six months later I had purchased my first duplex.

Cody Crabb (04:21)
That’s cool. That’s cool. I I do feel like someone hearing this in a different market might be like, Yeah, sure you just find out about it and then six months later so do you do you feel like some of this was possible because you of the market you live in?

MJ Berst (05:24)
Well definitely. And I I wanna add that I bought my first place in two thousand twelve, which was the bottom of the market. But I knew none of this. I knew that I wanted to buy a house. I was like twenty seven, twenty-eight, and I knew that that was sort of the next logical step of I guess like adulthood. Like, yeah, like you grow up and you graduate to school and you get a job, then you buy a house, right? I’m like, All right, I guess buy the house is the next thing on the list. So the wheels had already been turning, my

My dad always said, you know, like save twenty percent of your income and I just always kind of followed that advice and it’s not like I had this giant nest egg saved up, but I did have some money set aside. And honestly the lender was a hu like I always think of these people that sort of like fell into place. It was people who had been in the game for a long time, who knew what they were doing, who saw this young girl and didn’t want her to get in trouble financially. So it’s like I had a lot of good people along the way that made this possible,

I wanna say luck, right? Like some of it was definitely luck. And then a lot of it was just timing. Like two thousand twelve was a great time to buy because the economy still hadn’t fully recovered, interest rates were historically low, inventory was very available and like I didn’t know it was just dumb luck. I didn’t know any of that at the time. But now knowing that you know, d whatever, hindsight’s always twenty-twenty, but it’s like

Huh. Yeah, I guess it was just sort of like a right place, right time, right people situation.

Cody Crabb (06:50)
I do think this is still useful though, because I think that you know, you read a s an origin story of like Steve Jobs and you’re like, he started in a garage and he dropped out of high school, but he was also a genius. So like yeah. So I feel like we he you hear you but people like push that to the side and they’re no, but he started he dropped out of school out of college. so I think hearing like there was some luck involved is a good I think that’s so helpful because I think it also sounds like

you took the luck of having the setup there and then you kind of ran with it. Cause some people might have been like, I bought a duplex and then I that’s it. And then you left it there. But it sounds like you used that. I always say the, you know, the timing meets preparation is where real luck can happen. So it sounds like that’s what happened. So what move did you make after that?

MJ Berst (07:42)
Yeah. So actually the funny part is that I actually moved. Like I moved out of state. So I bought this duplex in Milwaukee and then I moved five hours away to the Twin Cities and I rented out my unit. I wanted to hang on to the property. And that’s really when I kind of realized what passive income was. Because all of a sudden I have this house, I’ve got both units rented out, and I’m making money on a place I don’t live in. And I’m like, God, I get it. This is great.

Cody Crabb (08:09)
Yeah.

For sure, for sure. And it’s it sounds like it sounds like I love this because it’s almost like you it you’re learning it on your own with no you’re like, did you know that you can do this? Like this is amazing. Like in your own experience. So that’s cool. because it’s like a anyway, so let me can I get some like idea of numbers? Like what did that actually look like roughly, you know, price and

And you know, the how much of the mortgage the other unit covered, things like that. Yeah. This is a common situation I think for people starting out.

MJ Berst (08:45)
For sure. So I knew right away that I wanted to do an FHA loan just because it was the least amount down and I you know, the I probably could have gone the five percent conventional, but there were just some things that I was like, No, I think I just wanna do a smaller amount. So the property was w it was sold for is it one twenty seven or one twenty four? I can’t remember, but you know.

Not a ton of money. I had to put three and a half percent down. They did have to do a couple of fixes because FHA does have stipulations to be able to like have the loan because it is a government-backed loan. So there was a couple issues in like the basement with they had basically taken out one of the support rods to to move the furnace. So and they had put in like not a it was like a two by four. So they had to

The right structural piece to like, you know, make sure the house didn’t collapse out. And there was some other dislike

Cody Crabb (10:20)
That’s one of those times where I’m like, you what? Sometimes you have to jump through some hoops, and sometimes those hoops will save your life if you Yeah, literally. Yeah. So that’s yeah, it’s crazy, actually. well okay, so I love all this because I think some people will hear that and be like, hey, that’s a that’s possible. Like someone could do that. and you know, you were it this is this is not something you’d planned on doing for a huge amount of time before that. so
I don’t know. I think that’s really great. something that I would be curious about. You said you were worried about being a landlord. and that was like a concern of yours initially. how has your view changed on that since you first had that thought?

MJ Berst (11:07)
Good question. So one of the things that I learned throughout the buying process is so my realtor was awesome. He had a daughter who was like about my age, so he was very fatherly throughout we looked at

I think it was seventeen properties. And I actually found the house that I ended up buying. I was driving like we put one offer in on this place that I still it’s literally like two and a half blocks from where I live. And I was so set on getting it, but they wouldn’t budge on price. And that we went back and forth

So I think three times and finally I was like, Nope, I’m walking away. And my realtor was like so proud. He’s like, Yeah, you’re like, you know, if it’s not the right price, you’re not gonna buy it. I love that. And but what made me mad is I ended up looking on the MLS later and it sold for the price that I was trying to get it for.

Cody Crabb (11:58)
That is ridiculous. I like that you went back and looked though. That’s funny too. That you went back and checked just to see if it was

MJ Berst (12:05)
yes. I forgot where I was going with that s

Cody Crabb (12:09)
No, yeah. So I so what I asked was, you know, becoming a landlord. Like the worries the worries that you had getting into that. Yeah.

MJ Berst (12:16)
So my realtor was like, You know that the City of Milwaukee has a landlord training program and I was like, What? And they do, yes, and it’s through the city and it’s like a I wanna say it’s like an eight-hour day and they give you it’s probably online now. I mean this was a while ago, but they give you a whole booklet, and they kinda walk you through some of like the pitfalls of you know, w just like discrimination things or like when you’re screening tenants and like the security deposit, like all the things that really are

you know, things that landlords have to deal with and might not know and if you do them incorrectly could cost you if not a lot of money, just a lot of headaches and time. So that was awesome. I l I still have the booklet somewhere. I mean I’ve

Cody Crabb (13:00)
I just out of curiosity just googled it really quick. Apparently my state also has one. the I live in Utah and there’s one there too. It sounds like this might be something that you can just do. Like that’s cool. That’s interesting. Yeah.

MJ Berst (13:14)
It was super cool. So that that kinda squashed a lot of my fears. I still I really I cannot stress enough how much I did not know what I was doing. Like that is just that was so apparent. It was just sort of like, I’m just gonna build the airplane as we’re going down the runway and hopefully we take off and

Cody Crabb (13:32)
I love that. No, that’s cool. ‘Cause I feel I feel like some people feel like they have this they have a dream brewing for ten years and then they maybe execute. The idea I love the idea that you’re like, no, that means you have ten more years of preparation than I do because I didn’t know anything. Like I think that’s so cool. so once you once you were in this position, you know, I wanna hear I wanna hear a little bit about you know, we before the podcast we were talking about being

being a landlord and one of the things that one of the perceptions of landlords is that they’re kind of just in general, just not good people. If you look on the internet and you talk you type in landlords, it’s probably not going to be good stuff. It’s going to be pretty anti-landlord. And in a lot of reasons, I think that’s pretty merited. I think that a lot of times like I s like I said to you before, like I it’s not that all landlords are bad. It’s that if you’re a bad person, it’s much easier to be a successful landlord. and so I think we get a lot of those.

But I would like to hear kind of your how your perspective changed on some of those things as you started doing them yourself.

MJ Berst (15:20)
Yeah. So I like I said, I’ve learned so much doing this. I think a couple of things really

shifted my perception. First, there are no shortage of slumlords who are ruining our name, right? That’s a real thing and I don’t I don’t want to ignore that because it does exist. There’s actually several in Milwaukee who are very well known and don’t take care of properties and have you know the city has been going after them for years. So the it is it is definitely a problem. One of the things actually when I moved to the Twin Cities I joined I didn’t actually buy a property when I moved

to Minnesota. I rented the entire time I was there. And in retrospect I should have bought, but that’s a different story. but I joined a group and it was called the it’s called something else now, but at the time it was called the Millennial Investor Focus Group. And it was all millennial-ish age people who had bought real estate in the Twin Cities and we would get together once a month.

And every month we would go to a different project that one of the local landlords was working on. So sometimes it was residential, sometimes it was commercial, sometimes it would be someone doing lending. it was kinda like the RIA, but way cooler. And it was

Cody Crabb (16:29)
The millennial angle sounds good. You all got Tamagotchis or something? Yeah, that’s awesome.

MJ Berst (16:33)
So that really changed my perspective a lot because I’m like, these are just people like me who are buying properties and kind of learning as they go, and some have a lot of experience and some are just getting started and some have had, you know, really big success and some have had some really expensive lessons, but they’re all kind of in it and they’re all

They’re all trying to improve the community. Like every house that we went to and every project that I saw was something that was trying to make the neighborhood or the city a better place. It wasn’t just like and Minnesota has much stricter laws than Wisconsin does, so you know, in the way they’re held to that standard. But I I do feel like that would have been that would have been the outcome regardless, because these were people who really saw a need and wanted to fix it. And, you know, they made money along the way doing that, but I think the end result was a win-win both for the you know, the landlord, the city itself and the tenant.

Cody Crabb (17:36)
Hmm. I like the idea of this kind of collective of landlords because I feel like that would give some people an opportunity to realize, I’m doing something that is not good. I’m doing some I’m looking at everyone else, and maybe this is not something I should be doing. so it’s like for you and really for everybody, the best version of landlording is not just pulling rent out from people, you’re making improvements, you’re improving the whole block.

And you’re still making the numbers work, but you’re also adding value. so where do you think do you think it’s just about margins for these ones that don’t want to do that? Or is it just why do the work if you don’t have to? What do you what do you think?

MJ Berst (18:20)
Not a bit s kind we kinda talked about this before the call, just the lack of accountability. For so long it was you know, there wasn’t the internet, there wasn’t Facebook groups, there wasn’t all of these different merchant there weren’t meetups. I mean there was RIA, but that’s like its own thing. And I’m in the RIA, so I’m not bashing it, but it’s like it’s you know, it’s a different level of communication than what than what we have now. And it’s

Easier for I think it’s easier for tenants to kind of put landlords to the fire when they’re not fixing stuff, which I think is you know, y as a landlord you need to provide a space that’s habitable. That’s like a non-negotiable in the world.

So I I in Milwaukee I do think our Department of Neighborhood Services does do its best to, you know, to accommodate that. I do think it you know, it some tenants can take it to the extreme when they’re mad about stuff, but I do think by and large it’s a it’s a system that is trying to be fair and trying to make sure that the tenant has a safe place to live and that the landlord is taking care of actual issues. So for but for a long time there wasn’t any sort of accountability mechanism.

And and now it’s like word does get around because there are, you know, there’s a lot of groups outside of the RIA. There’s several different investor groups here that are really active and really cool. So if you’re doing something that’s like shady or just unethical or just, you know, not good, I think there’s a lot more people calling other people out for their bad behavior.

Cody Crabb (19:54)
Yeah. And I mean that’s the situation you wanna be in. I think that you we’re seeing a huge rise in like corporations buying up properties and things, which that’s a whole other story. But when you’re talking about kind of a mom-and-pop situation like this, I that can have a massive effect because you’re talking about people that are your peers basically. And so if someone then if you’ve got a community that kind of yeah, Frank is not doing good stuff, that’s gonna limit his options too. So that’s just a bit

something that you mentioned just in passing before the podcast was evictions. And you said that that that eviction is maybe something that a lot of landlords don’t fully understand the ramifications of. Can you give me a little bit more on what you mean on that?

MJ Berst (20:43)
Yeah, for sure. So there’s a book that I think every landlord should read. It’s called *Evicted*. It’s by Matthew Desmond. And he actually he got a PhD from Harvard and he was basically doing his PhD study here in Milwaukee. And he was following around basically different groups of kind of lower income individuals and how b both like how they live their lives and also how eviction can really

become a cycle that people get trapped in. And I think there’s a couple there’s thing things missing on both sides. on the landlord side, I’m actually dealing with this right now. I have a a Section 8 tenant and it like landlording teaches you so much. So I have a Section 8 tenant who is, you know, she’s legally blind and for most of her tenancy with me she hasn’t worked. And she finally got sick. She’s like, I don’t wanna just not work. She’s like, I’m tired of sitting at home and like not doing anything and she went and got a job and I’m like, This is great But what she did not account for was how that was going to change her benefits and

Cody Crabb (21:49)
I knew as soon as he said that I already knew that’s where it was going. Yeah.

MJ Berst (21:54)
It is a real thing and I feel bad that she’s being penalized for doing the right thing, right? Like this is a woman who’s like, I wanna go out and be more self-sufficient and get a job and now her rent has gone up to i the basically the Section 8 portion that she used to pay has dropped dramatically and she’s not able to basically afford the unit anymore. And it’s just like sad because

I don’t want to like she’s not a bad person, you know what I mean? Yeah. but I also can’t subsidize her living there. So I have been working with her caseworker to get her caught up. Basically her lease renews in September. We’re probably gonna go with a non-renewal, but we’re trying to find her another place that’ll be more affordable with her voucher amount and but if she lived in just, you know, a big

conglomerate-owned place, they’d have kicked her out right away, right? Yeah. So I don’t like being out the money, but I also understand that part of what I’m supposed to do is make sure that, you know, I don’t want to put an eviction on her record because I know how much that can really change someone’s ability to get to get housing in the future. And I I also don’t think tenants understand how bad an eviction

Cody Crabb (22:51)
No no questions, yeah.

MJ Berst (23:16)
really is. Like that is something on your record that I mean you will be screened out of so many places. It will limit your options so much. So I think one of the things that’s important is just communicating. Whether you’re you know if you’re gonna be late on rent or you’re falling behind, finding both you know, there’s here there’s a decent amount of support groups and you know, things that like emergency rent assistance and stuff like that. So as a tenant, do your due diligence to find those things and then communicate along the way. And even like as a landlord, like there’s resource like you want to get paid. I get that. So knowing those resources is also in your best interest to know because you can say, Hey tenant, I know of this program or this organization that can maybe help you get caught up. and you know, there’s other things you can do. You can you know, people don’t like to move, but you can do like a mutual lease termination.

There are just options where you can work together to try to keep them from getting evicted and really having that basic like that black mark on their record. So that’s one of the things that I am I guess passionate about, maybe at my own detriment, but also I feel like my goal is not to make someone else’s life harder than it has to be, especially if there’s other options that could be pursued for

Cody Crabb (24:35)
So my question to you is, do you think that what you’re doing in this situation specifically, do you think that should be a standard or do you think you’re doing more than should be necessary per se?

MJ Berst (24:50)
I think it’s a case-by-case situation. I’ve known her for six years and she’s been a good tenant up to this point. So I’m probably more lenient than someone would be. I also know she’s got kids, like I know the kids, like I’ve been you know, I go over there to pick up rent or like work on the house or stuff like that.

Cody Crabb (25:05)
Like a lot of words for saying I think this should be a standard because of you know what I mean? Like if you know someone for that long and it’s they’ve been a good tenant, and it’s I think I think you’re right. Like I think it I’ve certainly heard like horror stories of evictions completely wrecking someone’s life because they can’t find housing. and I think you know it’s a little bit like the story of the billionaire, right? So this guy was telling a story about his dad who owned a grocery store.

This guy said, my dad had a choice at one point he had a choice to either expand to another location or fire somebody and for just for no reason, just for business reasons. And the minute he made that decision was when he decided I’m not gonna I can’t make more than a certain amount of money because he decided on the person because he and he was a successful guy and he retired and he had he was comfortable and stuff.

But he never got to this like billions and billions or even like hundreds of millions level because he made a choice to help the people first. And I think that’s really what you’re saying is like, yeah, you could make more money. You could. That’s possible. And like I said, if you’re if you’re a bad person, this is a great business to be in, frankly. This is amazing. I shouldn’t be saying that out loud, but it’s true. And then and but I like the idea that like, or you could make twenty percent less money.

10% less money and be a great person to live with and your reputation spreads. And what’s the opposite of a slumlord? You could be that. Like you could I want to rent there because they have a really good reputation. So yeah, that’s a huge deal. And I think that you’ll sleep better at night. I mean, unless like I said, you’re a bad person, then who cares? But so I I this is really great. I I really appreciate all the all the really awesome info that we’ve shared today. for someone that wants to get into investing without much of a maybe they’ve thought about it for a while, it’s been in the back of their mind. what would you say to them f because you like they might look at your situation and be like, yeah, be born when you’re born in the in a city with a low housing cost and, you know, all this stuff. is there is there some advice you would give, even knowing the luck that you kind of have come across?

MJ Berst (27:33)
So it’s funny, it okay, so I read Rich Dad Poor Dad in College. I went to school for business and it was one of the like I forget what course it was that we it was a required reading for, but it was, you know, but at the time, you know, I was twenty four maybe. I went back I went back to school and I thought I knew what I was gonna do and then I didn’t know, and then I went back to school and I kinda figured it out.

That was one of the business books that we had to read. But even at the time as, you know, in early twenties something, it didn’t really stick. And then I reread it after I had bought my first rental property, probably a couple of years after that. And I looked at it completely different. So one of the things that I would tell people who are just getting started is to like get your mindset right because that’s such a huge part of this game.

Mindset and financial literacy are I would say two of the big pillars of real estate investing. I didn’t really learn how to manage my finances till after I bought a rental property and had to learn how to budget and be like, like what happens if something breaks or like I need to put in a new furnace? It’s like, I don’t have a fund for this, so what do I do? so I should I

I took Dave Ramsey’s financial peace literacy thing like three times. and now I tell people I’m like w my friend Eric actually said this, so I have to give him credit, but he’s like, anybody who does not know how to manage their finances desperately needs to listen to Dave Ramsey, and anybody who knows how to manage their finances desperately needs to stop. And I like that because

Cody Crabb (29:14)
That’s really that’s that is legitimately pretty good advice. Yeah. That is Yeah.

MJ Berst (29:18)
Yeah, right.

‘Cause you need the foundation.

But also Dave is very against, you know, some of the things that like he would never want you to take out a HELOC to buy another property and things like that, right? But it’s like really understanding kind of the basis and you know, and he’s like, Well, don’t get credit, I’m like, Okay, but it’s really hard to buy a property without credit, these things it’s just not

Cody Crabb (29:38)
Yeah, it’s one of those like it’s great advice for beginners, but once you get past a certain level, it’s kind of maybe yeah, it’s not the best. So well, again, thank you so much for all this. I want to give people a place to find you. if people want to reach out to you and get in touch with you, who’s the right person to reach out to you? Are we talking like people in Milwaukee, potential tenants, potential like partners? Like what is it who should be reaching out to you and where can they get in touch?

MJ Berst (30:04)
Yeah, for sure. So definitely the Milwaukee area. I mean, I’m always looking to expand. I have not I haven’t thought about expanding outside of Wisconsin. I grew up about forty minutes north of here, so I I know the southeastern Wisconsin area very well. I’ve been in Milwaukee for, I don’t know, a long time at this point. And I’m always looking to connect with other just realtors and investors and people who just want to learn about real estate. down the road I would like to talk really to more people about maybe partnering on things. I’ve got some just interesting ideas as to how we can sort of invest in the city and really use I think real estate is a really helpful tool to revitalize a city and I would love to find other people who sort of share that mindset.

I am active on Facebook and LinkedIn. it’s just my name, it’s MJ Berst. And those are probably the best places to reach me. And yeah. I anyone literally anyone who wants to talk real estate, I will never say no.

Cody Crabb (31:08)
Yeah, you’re good at it. I’ll say that. yeah, you’re a delight to talk to. No, you got stories and it’s just real you seem like a human being, real actual person that is like I got into this and I want to talk. Yeah. So thank you so much for joining us today and for your time. and thank you listeners for giving us some of your time too. Make sure you don’t miss another episode. MJ, it’s been a pleasure. Listeners, see you next time.