Property operations
A 3 A.M. Fire Call and What Passive Income Actually Looks Like
A 3 a.m. call said our building exploded. Caleb Hommel and I drove out to the 76-unit in Stephenville and talked fires, LIHTC deals, and hiring and firing.
I got a call at 3:00 in the morning telling me there was a massive fire at my property. I'd lost the building. It hit the gas line and there was an explosion.
So, like a responsible owner of passive real estate, Caleb Hommel and I hopped in the truck and drove down bright and early to see what was left.
Related reading: How Caleb Hommel Hit 200 Units and a $5M Fannie Loan at 22
That drive led to a closer look at our 76-unit property in Stephenville, Texas. The experience brought several questions into focus: what caused the fire, how passive rental income really is, how Caleb found this deal at 21, and why low-income housing tax credits have become part of our strategy. It also raised a practical operating question: how to build and manage the team on site.
The Fire Was a Two Out of Ten
Here's what we found when we got there.
On a scale of one to ten, Caleb put it at about a two. Maybe a two-five.
There was an outlet in the garage that caught fire and burned up against the fire retardant wall. It may have been miswired (that's honestly not confirmed, we generally have no idea yet) but all it did was burn up a garage a little bit. One of the 76 garages on the property.
The tenants lost their cat food and their fridge. We'll have to do some rewiring, replace the drywall, and handle the smoke remediation. Best guess at this point: $15,000 to $20,000 of damage.
When you're told at 3 a.m. that you lost the building in an explosion, $15,000 to $20,000 is not the worst outcome available.
But it's a great illustration of the question people never ask before they buy: how passive is the passive income?
Passive Income Is a Tax Designation, Not a Lifestyle
I asked Caleb straight out. He's got about 189 rentals right now and should be passing about 320 by the end of the year, which is phenomenal at 22 years old. During the build phase, how passive has this business been?
On that same one-to-ten scale, with ten being completely passive and zero being not passive at all, his answer was zero.
Passive income is a beautiful tax designation with a whole bunch of benefits attached to it. But building and stabilizing a portfolio is a massive undertaking. A lot of people fall into the online guru sucker version of this: look at all these passive rentals, people pay me, I go to the mailbox. You can absolutely get there, the same way you can in any business. But it's important to remember that when you're buying apartment complexes, you're buying rentals. Rentals come with 3 a.m. phone calls.
The property is 76 units on a 13-acre campus. A site that size takes time to inspect properly.
Caleb found this deal when he was 21. It came out of a prior relationship on a different deal we'd made an attempt at about six months earlier. Nothing came of that one, but the broker reached out later and said, hey, I'm selling a portfolio, would you like this one?
It turns out we would.
That's the part people miss. The deal you don't get is often how you get the next one.
Stephenville, and Why We Keep Buying There
We own 186 units in Stephenville, Texas: a 25, a 26, this 76, and a 44. It's one of our favorite places to own, and we've just been scaling and scaling and scaling there.
You can do this in absolutely any market. This just happens to be the type of stuff we like to buy: big buildings, nice locations, excellent markets.
This one is a true class B property. Pool, clubhouse, park: all the amenities, nice buildings, but by no means a new build. It's lower income property, and that's exactly the space we want to be in.
I asked Caleb how we're finding deals that cash flow day one, because that's a hard trick on nice real estate.
His answer: LIHTC: low-income housing tax credits. We've found these deals to be incredibly stable (not passive, but stable) and to have great cash flow on day one. We're buying them at reasonable prices for two reasons. One, we can qualify as the buyer. Two, we can come in and perform a qualified contract, where we make a ton of money on the back end as well.
Find the Thing Only You Can Do
What it really comes down to is finding where you have a competitive advantage.
I love entry-level housing. I love the consistency of class C and class B properties. And Caleb and I have both done enough Section 8 that we're able to qualify to buy these LIHTC deals, which means we can compete on pricing that other people can't. That's the competitive advantage in one sentence.
You can have all sorts of different competitive advantages:
- Location. If you live in the market and you're close to the property, that's an advantage.
- Relationships. Friends, family, brokers in your area.
- Skills. If you're a great contractor or electrician, use it.
Figure out the ways you can push value that others can't. For us it's been LIHTC, it's been Section 8, it's been low-income housing, because of the demographic we're passionate about serving and the experience we already have.
Advice for the Young Entrepreneur
I'm 33. I don't get to be the young guy in real estate anymore. Caleb has taken up that mantle: six months of college, no real job outside of DoorDash, and he's built a very successful sales and marketing company and a huge real estate portfolio.
So I asked him: for the high schooler getting out of school or the young professional just exiting college, what does it actually take to be an entrepreneur?
Two things, in his words.
First, a willingness to act despite the fear of failure. As a competitive person, he still feels that fear. He was frustrated with things he wasn't doing perfectly at the sales and marketing company, but waiting for perfection wouldn't fix them. His approach is to take action, see what happens, and adjust.
Second, get somebody who's already done it, or somebody to go through it with. Not everybody needs a partner, but having a mentor has been crucial in his journey.
Having the privilege to be that mentor means a lot to me. When you're just a few steps ahead of someone else, bringing other people up with you is not only fun and rewarding: it's how we accidentally built this giant community called Multifamily Strategy, just by sharing the journey with enough people. It's become my biggest passion project.
Hiring Fast, Firing Fast
There was a second reason we were on site that day. We had a mission to execute in about 15 minutes: letting go of some employees.
You can't win a championship with a team full of B players. You cannot have an A team with B players, C players or F players.
Sometimes you make a hire and it's fixable by moving people around seats: you have a pretty good player who's just in the wrong seat. We've had that. We had someone who was an A player for us, switched their role, watched them start failing, reconfigured their position, and they're back to being an A+ player.
But we'd also made a couple of hires who weren't just in the wrong seat. They were the wrong people on our bus, unable to complete the project as designed.
So: hire fast, fire fast. People always lie on the interview. Do your best to bring in the best people, but if you find they're not working, the speed at which you can get them back out of your org is critical.
I asked Caleb how many people he'd let go this year. In the last 30 days alone, at least five, and realistically five to ten. At 22 years old, hiring people his own age and mostly people older than him.
How does it feel? It never feels good. That's the short answer.
But he made a point I think is right: you're often doing these people a favor, especially in commission-based jobs. If someone isn't making enough money to support themselves, the conversation gets easier: I need you to be able to take care of yourself and your family, and here's why this isn't working. Lead with honesty and don't go in so worried about what somebody else thinks.
Credentials don't always tell the full story. Somebody can qualify perfectly on paper, and a 22-year-old with no college education can come in and outwork them with zero qualifications on paper.
I'll take drive over experience. Drive plus some experience is always preferred. And there's a caveat by role: if we're hiring a CPA or an EA, obviously the qualifications matter. But for a salesperson, an on-site property management employee, or a maintenance tech, that's 100% work ethic over experience any day of the week.
We maintain about 40 people across our organization right now. I've also hired rooms of 25 people and fired them all in the same day, so I've had all the ups and downs of this. Here's the sequence I'd give you:
- Know yourself and the role you take on the bus. Some of you are the driver: the visionary, the organizer, the one steering. Some of you are great supportive players, and the best thing you can do is find that driving person and help them build the biggest company they can.
- Stack your bench full of A players. Get the right people on the bus first.
- Then move them into the right seats so they can thrive.
- And if it's not the right person for your bus, even if they're an A player, let them go and give them the chance to get on the right bus where they can go farther.
One rule Caleb brought up: he heard it from Elon, and Hormozi has said it too: if you have to go out and create new rules around employees doing certain things, that's a pretty easy indication they're not an A player. If you're adding proof-of-work requirements and extra headaches for yourself just to manage one person, it's time to cut the rope.
Key Takeaways
- The 3 a.m. "you lost the building" call turned out to be a garage outlet fire and roughly $15,000 to $20,000 in damage. Assess before you panic.
- Passive income is a tax designation. During the build phase, Caleb rates the business a zero out of ten on passivity.
- The deal that falls through builds the relationship that brings you the next one: that's how the 76-unit came to us.
- Buy where you have an edge others don't. Ours is Section 8 experience that lets us qualify for and compete on LIHTC deals.
- Hire fast, fire fast. People lie on interviews, so the speed you can correct a bad hire matters more than the interview itself.
- Drive beats experience for sales, on-site management and maintenance roles. Credentials matter where they actually matter, like a CPA or EA.
The core message from a day in the field: get out and get active in your business. Go do cool stuff, make mistakes, get some wins. Caleb and I have each made millions of dollars from deciding to take the risk, and we've had calculated failures that cost us a lot of money too. You're never going to move anywhere if you don't take steps toward action, and you're not going to learn anything if you don't fail. Fail fast, fail early, fail often, and don't make the same mistake twice.
Watch the full video to see the 13-acre campus, the fire damage, and the conversation as it actually happened. If you want to go deeper, you can learn about my mentorship at multifamilystrategy.com, or download our free course on getting started in multifamily investing. Our free Skool community is linked in the description and comes with a free calculator.
Read the episode transcript
0:00 We are here at the 76 unit. Caleb and I 0:03 just drove down. We got a call. Well, 0:05 specifically, I got a call at 3:00 in 0:07 the morning saying, "Hey, there's a 0:08 massive fire at your property. You've 0:10 lost the building. It hit the gas line 0:12 and there was an explosion." So, of 0:14 course, like a responsible owner and 0:16 passive real estate, Caleb and I hopped 0:18 in the truck. We drove down here bright 0:19 and early in the morning. And turns out, 0:21 Caleb, how bad was this fire? Actually, 0:23 uh, on a scale of 1 to 10, I'm going to 0:24 say about a two tops. I might call it a 0:27 two five. the garage. There was a outlet 0:30 in the garage that was miswired. It 0:32 caught fire and burned up against the 0:35 fire retardant wall. 0:36 And on that note, it was miswired. It's 0:39 actually not confirmed if it was 0:40 miswired or not. We generally have no 0:42 idea, but all it did was burn up a 0:44 garage a little bit. 0:44 Yep. It looks like they lost their cat 0:46 food, their fridge, and we will have to 0:49 do some rewiring. We're going to have to 0:51 replace the drywall, do the smoke 0:52 remediation. Overall, best guess at this 0:55 point, $15 to $20,000 of damage. Now, 0:58 when you're told, hey, you lost the 0:59 building in an explosion, $15 to 1:01 $20,000, not uh not the worst thing that 1:03 can happen. But a great illustration, 1:06 how passive is the passive income? 1:08 Caleb, you have what about 200 rentals 1:11 right now under contract for another 1:13 roughly 200 rentals. 1:14 Yeah, exact. I'm about 189. Should be 1:16 passing about 320 by the end of the 1:18 year, 1:18 which is phenomenal, by the way, at 22 1:20 years old. Freak of nature. But as 1:23 you've built this, how passive would you 1:25 say this business has been during the 1:26 build phase? 1:27 If we're going off the 1 to 10 scale 1:29 again, um it's going to be about a zero 1:31 out of 10. Um 10 being completely 1:33 passive, zero being not passive at all. 1:35 So passive income is a beautiful tax 1:37 designation that has a whole bunch of 1:38 benefits to it. However, building and 1:42 stabilizing a portfolio is a massive 1:44 undertaking. I think a lot of people you 1:46 fall into the online guru sucker thing 1:48 of, oh, look at all these passive 1:50 rentals people pay me. I go to the 1:52 mailbox and you can get there like you 1:55 can in any business. But it's important 1:56 to remember when you're buying apartment 1:58 complexes, you're buying rentals. By the 2:01 way, really quick, look at this. This is 2:03 76 units we're on. This is a 13acre 2:06 campus. We're not going to make it all 2:07 the way around the campus just filming 2:09 this video. Uh, crazy acquisition. 2:12 Caleb, you actually were the one who 2:14 found this deal. You found this when you 2:16 were 21. How did this deal come about? 2:18 Actually, maybe you just turned 22. It 2:20 was actually um it was actually 21 is 2:22 when I originally found it. Took some 2:24 time negotiating it. This came from a 2:25 prior relationship on a deal I had made 2:27 an attempt at or we' made an attempt at 2:29 about 6 months beforehand. Nothing came 2:31 to fruition. Broker reached out and 2:33 like, "Hey, I'm selling a portfolio. 2:34 Would you like this one?" And it turns 2:36 out we would. Yes. And when you're 2:39 buying properties, it turns out you can 2:41 actually buy buildings that are big 2:42 buildings. You can buy big buildings in 2:44 nice locations, excellent markets. We're 2:47 here in Stevenville, Texas. One of our 2:48 favorite places to own. We own 186 units 2:51 in this town. 25, 26, 76, 44. We have 2:56 been scaling, scaling, scaling. You can 2:58 do this in absolutely any market, but 3:00 this is the type of stuff that we like 3:01 to buy. Kayla, how do you find these 3:02 deals where they cash flow day one? Cuz 3:05 that is a hard trick on nice real 3:07 estate. Yeah, a big way we're doing this 3:10 lately is through LITC, low-income 3:11 housing tax credits. We found these 3:13 deals to be one, incredibly stable, not 3:15 passive, but incredibly stable, and two, 3:17 have great cash flow. Day one, we're 3:19 buying them at reasonable prices because 3:21 we can one qualify as the buyer, and 3:23 two, come in and perform a qualified 3:25 contract where we make a ton of money on 3:27 the back end as well. 3:28 Yes. Really, what it comes down to is 3:31 finding where you have a competitive 3:32 advantage. I love entry- level housing. 3:35 I love the consistency of class C, class 3:37 B properties. This is a true class B. 3:40 got pool, clubhouse, 3:43 uh park. 3:45 You have all the amenities, nice 3:46 buildings, but it's not by any means a 3:48 new build. It's it's lower income 3:50 property. This type of stuff is really 3:52 fun, but we found a niche. We found 3:54 something that we had a unique advantage 3:55 of. I've done enough section 8. Caleb's 3:57 done enough section 8 where we're able 3:58 to qualify to buy these litec deals. So 4:01 now we can compete on pricing that other 4:03 people can't. Hence the competitive 4:04 advantage. You can have a ton of 4:07 different competitive advantage. One of 4:08 them being your location. If you live in 4:10 the market, you're close to the 4:11 property, you have an advantage. You 4:13 have friends, families, relationships, 4:15 brokers, you have a competitive 4:17 advantage. You are a great contractor or 4:19 electrician. Use it to your advantage. 4:21 But figure out ways that you can push 4:23 value in a way that others can't. For 4:24 us, it's been lit. It's been section 8. 4:27 It's been low-income housing because of 4:28 the demographic that we are passionate 4:30 about serving and the experience that we 4:31 have. 4:32 Exactly. 4:33 Caleb, advice to someone getting started 4:35 young. I talk on this channel a lot, but 4:38 I'm 33. I don't get to be the young guy 4:40 in real estate anymore. You've taken up 4:41 the mantle as a young truly young 4:44 entrepreneur. 4:46 You never went to college. Well, you you 4:48 did um 4:49 six months 4:50 six months of college. 4:51 Uh so you never really did the college 4:53 thing. You graduated high school. You've 4:55 never really had a job outside of Door 4:56 Dash. N 4:57 you've started a very successful sales 4:59 and marketing company. A huge real 5:02 estate portfolio. 5:04 Young people getting started. So, let's 5:05 let's gear this towards the high 5:08 schooler getting out of high school or 5:09 the young professional just exiting 5:11 college. If you're looking at being 5:12 entrepreneur, what does it take to be an 5:14 entrepreneur? 5:15 I think the biggest thing for me, one of 5:17 them is the lack of a fear of failure. 5:19 And I'm not saying it shouldn't be 5:20 there. I think as a a hyper I guess 5:22 competitive person, it's always there, 5:24 but that and then two, not being afraid 5:26 to go for it. Kind of in that same vein, 5:27 the ready, fire, aim approach, realizing 5:29 you're not going to do anything perfect. 5:31 before we got in this video on the sales 5:33 and marketing company. I'm just beating 5:34 myself up about things I'm not doing 5:35 perfect, but ready, fire, aim, taking 5:38 action, adjusting after the fact 5:40 is one of the is probably the biggest 5:41 one. Number two, get somebody who's 5:42 already done it before or somebody to go 5:44 through it with. I don't think everybody 5:46 needs a partner, but having a mentor has 5:48 been crucial for me in my journey. Uh I 5:50 appreciate that a lot. And having the 5:52 privilege to be that mentor, I think 5:54 it's so important when you're just a few 5:56 steps ahead of someone else, bringing 5:58 other people up with you. Not only is it 6:00 super fun and rewarding, uh, but we 6:03 accidentally built this giant community 6:05 called Multif Family Strategy just by 6:06 sharing the journey with enough people 6:08 and it's become an amazing thing in my 6:09 biggest passion project. Switching 6:12 gears, I noticed as we were passing the 6:14 courtyard, there's a bunch of trash in 6:16 the middle of our courtyard. Uh, I don't 6:18 know if you saw that, but there's 6:19 bottles. 6:20 Mhm. 6:20 Uh, there's water bottles, candy 6:23 wrappers. 6:25 This doesn't quite look exactly like I 6:26 want it to. Now, the landscaping looks 6:28 really good. Phenomenal. 6:29 We've come a long way. We're here today 6:31 on a special mission and I'll be posting 6:33 this video after we execute on this cuz 6:36 it's our project in about 15 minutes. 6:38 Hiring and firing Caleb. Uh you can't 6:40 build an A team. You can't win the 6:42 championship with a team full of B 6:44 players. That's been my experience thus 6:46 far. Turn around and get away from this 6:49 motorcycle that's coming at us and I'll 6:51 switch hands. 6:53 That's how you know it's in the field 6:55 day. 6:56 Yes, we're on field day. So, you cannot 7:00 have an A team with B players or C 7:02 players or F players. 7:03 Correct. 7:05 Sometimes you make some hires and 7:06 sometimes you can move people around 7:08 seats. Sometimes you actually have a 7:09 pretty good player, but they're in the 7:10 wrong seat. We have ran into a situation 7:12 where we've made some hires and one or 7:15 two of them are uh the wrong people on 7:17 our bus. They're not just in the wrong 7:18 seat, they're unable to complete the 7:20 project as designed. So, as part of 7:22 today's mission, we're going to be 7:25 letting go of some employees, which is a 7:27 uh never a fun thing to do. 7:29 Nope. 7:30 But I found that the best way to build 7:31 business, especially when you're young, 7:32 you got to earn this. Learn the skill 7:34 quick. Hire fast, fire fast. People 7:37 always lie on the interview. So, do your 7:39 best to bring in the best people, but if 7:41 you're finding they're not working, the 7:43 speed in which you can get them back out 7:44 of your org is critical. Caleb, how many 7:47 firings have you done this year? Roughly 7:50 how many people do you think you've let 7:51 go of? 7:52 We can talk about in the last like 30 7:53 days probably five at least. 7:56 I don't know about the whole year but 7:57 last 30 days at least 5 to 10 at 7:59 at 22 years old hiring people many of 8:02 them your age many of them older than 8:04 you. 8:04 Yeah mostly older. 8:05 How does it feel letting people go? 8:09 It never feels good is the short answer. 8:11 And in the end, I don't mean this in a 8:13 manipulative way at all, but you 8:14 actually are doing these people a favor, 8:16 especially in commission based jobs 8:17 where it's like incentive based. If you 8:19 hit X performance or make X much, you 8:21 get rewarded. If you're not making 8:23 enough money to support yourself, it 8:24 generally is a lot easier a 8:26 conversation, at least on the commission 8:27 end to come be like, hey, I need you to 8:28 be able to take care of yourself and 8:29 your family. Here's why this is not 8:31 working currently. It's It's never a fun 8:33 conversation, but I think just leading 8:35 with honesty and just not going in there 8:37 so worried about somebody else thinks, 8:39 like Christian mentioned, people lie on 8:40 the application. You're doing your very 8:42 best. Credentials don't always tell the 8:44 full story. Somebody could qualify on 8:47 paper to the best of their ability, or 8:48 somebody could be a 22-year-old with no 8:49 college education and come in and 8:51 outwork them and have zero 8:53 qualifications on paper. 8:54 No, I I've absolutely found that that's 8:56 true. I'll take someone who has the 8:58 drive over someone who has the 8:59 experience. if they have some experience 9:01 at some drive, that's always preferred. 9:03 And then caveat to that depends on the 9:04 role. If we're hiring a CPA or an EA, 9:07 obviously. 9:08 Yes. But if you're hiring for 9:09 salesperson, on-site property 9:11 management, employee, maintenance tech, 9:13 that is 100% work ethic over experience 9:16 or qualifications any day of the week. 9:18 Yeah. So, if if you're getting started 9:19 on this, my advice to you, having done a 9:21 lot of hiring and firing over the last 9:22 years, right now we maintain about 40 9:24 people in our organization. Um, I've 9:26 unfortunately hired rooms of 25 people 9:29 and fired them all in the same day 9:30 before. So, I mean, I have had the uh I 9:32 have had all the ups and downs of this. 9:34 Your first mission is knowing yourself 9:36 and the role that you take on the bus. 9:37 Some of you, like me or Caleb for our 9:40 respective companies, you're going to be 9:42 the driver of the bus. You're going to 9:43 be the one who's the visionary. You're 9:44 going to be the one organizing. You're 9:46 going to be the one steering. Some of 9:47 you guys, you know, you're a great 9:49 supportive player. And the best thing 9:50 you can do is find that visionary, that 9:52 driving person and work with them to 9:54 build the biggest company you can. So 9:56 knowing yourself is going to be the 9:57 first thing. Second thing, stack your 10:00 bench full of A players. Get all the 10:01 right players on the bus. Then 10:05 you try to move them around the right 10:07 seats. We actually had a player in one 10:08 of our companies who was an A player for 10:10 us. We switched roles. They started 10:13 failing. 10:15 We reconfigured their position. they're 10:18 back to being an A+ player. It's getting 10:20 the right people on the bus, getting 10:22 those people in the right roles, making 10:23 sure the people can thrive. And if it's 10:24 not the right person for your bus, even 10:26 if they're an A player, fire them and 10:29 give them the opportunity to get on the 10:30 right bus where they can go farther. 10:31 I think that might be the biggest point. 10:32 There are people, especially in my org, 10:34 that at once were A players who have 10:36 slid. There are people who are like, 10:37 man, you're really a C player and switch 10:38 roles and they're an A. One rule, funny, 10:42 I heard this from Elon and I think 10:43 Hermoszi said it as well. If you have to 10:45 go out and create new rules around 10:47 employees doing certain things, that's a 10:49 pretty easy indication they're not an A 10:51 player. An example would be you have to 10:53 be clocked on during the 9 to5 in the 10:55 schedule you work and you have to start 10:57 adding all these other things like I 10:58 need proof you're working all this 10:59 stuff. If you're adding extra headaches 11:01 to yourself, they're probably not an A 11:02 player and that's when you know you need 11:03 to hey, it's time to cut cut the rope 11:05 and move on. So YouTube, these are words 11:08 from the field from Caleb and Christian. 11:10 Uh, good luck, Christian, titling this 11:12 video because we've talked about uh, 11:13 fires, buying a 76 unit, hiring and 11:16 firing. Uh, the core message here is get 11:18 out and actually get active in your 11:20 business. If you're getting started, go 11:21 out and do cool stuff, make mistakes, 11:24 get some wins. Uh, Caleb and I have 11:26 respectively each made millions of 11:28 dollars making the decision to go ahead 11:30 and take the risk that we have. 11:32 Calculated 11:32 failures, too. Cost ourselves a lot of 11:34 money, but you're never going to move 11:35 anywhere if you don't take steps towards 11:37 action. 11:37 And you're not going to learn anything 11:38 if you don't fail. So, fail fast, fail 11:40 early, fail often, and don't make the 11:42 same mistakes twice. YouTube, I'll see 11:44 you on the next episode.
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