Retiring in 2 years Through “Aggressive” Rental Property Investing | BiggerPockets Podcast 454

this is the bigger pockets podcast show 454 you're listening to bigger pockets radio simplifying real estate for investors large and small if you're here looking to learn about real estate investing without all the hype you're in the right place stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com your home for real estate investing online what's going on everyone it's brandon turner host of the bigger pockets podcast here with my co-host mr david green what's up david green how you doing i'm doing great i'm back in northern california just got back from tahoe yesterday we had our go abundance event unfortunately you couldn't make it but i held it down for the two of us and had a great time thank you were you like the uh the cool kid in the back just smoking and leaning back in his chair and everyone's like oh it's david green is that how that was what actually happens if everybody wants to know the reality is that when brandon shows up no one pays any attention to me at all that's not even true at all i get completely discarded and thrown to the back so i sabotaged brandon so that he couldn't come i i put his name as a terrorist on the the flight records so that he wouldn't be able to leave hawaii using my law enforcement connections and he wasn't able to come so i was the belle of the ball the whole time i got all the attention um i was the pretty girl so i had a great time that said let's get into today's show with a phenomenal guest rachel richards rachel along with her husband were able to build a portfolio of like dozens of units and when i say units you're gonna find an interesting strategy to use uh later that'll make more sense later than what i'm saying right now that they buy these properties and we're able to retire in not ten not seven years not five years but two years after getting started they were able to retire and live off their cash flow you're gonna learn about the aggressive model uh that uh rachel follows be able to do that you're also gonna hear a little she got a lot of good tips in there but things make sure you listen for how she decides whether or not to do a task or not like whether or not she should outsource it or do it herself that was really really gold uh and then just maybe the six thousand dollar getting stolen from her that's a crazy story you're gonna hear about that and a whole lot more so all that and more to come but first let's get to today's quick quick tip today's quick tip is very simple if you want to be a guest in the bigger pockets podcast and you've done at least a dozen deals go to biggerpockets.com guest g-u-e-s-t uh you can upload like uh your information even like attach a video let us know why you are an amazing guest and uh maybe we'll bring you on the show i think it's time to get into the show anything you want to add david before we bring in rachel rachel's strategy as you guys are going to hear today is one of the most simple to replicate of any that i've heard there's several other people that i've actually put on the path when they tell me what their goals are to using this strategy brandon hasn't coined a term for it but stay tuned because i guarantee you he will if you decide this is something you want to do go ahead and send me an email or reach out to me on social media and i'll connect you with the people that i know in that market that can help you guys get started because i think for a lot of people this is the best place to start their journey towards financial freedom i do have a name for it's called the yard foot strategy or the yard inch yard inch the yard inch strategy that's what the new name is going to be you heard it here first folks it's not really that catchy is it i don't even see how it applies you have to break that one down you buy by the yard and sell by the foot or by the yard and stop by the inch that's the that's the strategy you know when you take some time to qualify it it makes sense but i think you can do better that said let's get to the interview with rachel richards rachel welcome to the bigger pockets podcast it is awesome to have you here yes thank you brandon and david for having me yeah so let's get into your story a little bit how did you discover and get into the wide world of real estate investing like a lot of other people i read the book rich dad poor dad in high school and that's what kind of sparked my passion for getting into high school yes high school is not usually her that's that's unique this is an overachiever folks yes i i very much am and actually even at a younger age i was reading personal finance books because i grew up in a really wealthy county it was a very unrealistic bubble to grow up in and i remember feeling like i didn't fit in and that's not the way you want to feel in middle school and in high school you know my parents were always on a strict budget money was always a stressor in my family and actually in sixth grade is when i read my first finance book motley fool's guide for teens how to have more money than your parents ever dreamed of it's like that sounds cool started reading and i just couldn't stop learning ever since then and i that's kind of what sparked me wanting to become financially independent at a young age that makes a lot of sense all right so you're red rich dad poor dad and then you're like alright this this the the prescribed like pattern for life that 90 of people follow is not for me so what did you do i tried to figure out how i could invest in real estate as early as possible in hindsight i could have done this a lot sooner i had a lot of limiting beliefs around i don't have enough experience i don't know enough i'm too young i didn't have enough money um but i first went into college i paid my way through school selling cutco cutlery have you guys heard of cutco knives oh yes i'll tell you there's a lot of great sales minds that came out of cutco i have a lot of respect for their training program yeah yeah they're great so i i was able to pay my way through school and graduate without debt i became a financial advisor because i had this passion for helping people learn about finance and i had the sales background the only problem was i wasn't interested in cold calling people for the next 10 years of my life so i was like oh come on why not that's fun yeah why not i was like there has to be another way to teach financial literacy and impact people um so in the meantime i was looking into real estate investing and finally at age 24 combined with my uh you know my husband's efforts and knowledge as well we were able to purchase our first duplex was that a house attack did you live in one of it you was a straight rental it was a straight rental and so a lot of people you know they see that we have 38 doors we're young they're like you must be a trust fund baby um that and then i'm sure a lot of guests get that on this show but no we are not trust fund babies um i actually never made six figures from a job or a salary ever in my life and when i graduated i was only making 36 000 so it's not like i had any distinct financial advantage working for me i was just really frugal i was aggressively saving fifty percent of my income so starting out i was living off fifteen hundred dollars per month and by the time i was twenty four my husband and i had saved money so we each put ten thousand dollars in to get to a twenty thousand dollar down payment on that first rental and that's how we got started that's awesome where was that rental at louisville kentucky that's where all six buildings are located for us all right louisville kentucky so yeah it's definitely a cheaper market is that where you live i'm just doing then it is where i used to live just last year we moved out to colorado so we'll get to that part of the story i guess so uh tell me about that first duplex i mean what went right what went wrong uh a lot of both so what went right and is that the way that i found the property it just worked really well for me this is probably the greatest deal we've ever done was our first property which is pretty unusual um i had my real estate license at the time because i had had it from a previous stint in real estate didn't i didn't ever work with clients but i had it for my own purposes part of what i was doing in those early years was looking at the expired and canceled listings on the mls and and reaching out to those agents but i think where other people might reach out once and learn oh can i make an offer what's going on i was following up with people you know once a month once every other month and there was this duplex that i saw in a great part of louisville at a really really cheap price i followed up with the list agent over six months just to be like hey i just want you know i'm still interested just want to stay top of mind you know when you're ready i'm here super friendly and before that seller relisted the property on the mls the list agent came back to me and said hey we're about to re-list you want to go ahead and make an offer and we did and that was such a huge advantage for us so we got our first rental ended up being something like a 20 to 25 percent cash on cash roi and it's just one of the best properties we own that's awesome so that's what went went right that's how you got it what went wrong on that one anything that you learned we've learned so much with every single property that we've done but one thing going in is like i kind of structured the deal in the wrong way at first so this was a duplex where one unit was rented it was under rented but it was still rented the other unit needed a total rehab i mean it was an absolute disaster so at first i was like okay well maybe we can squeeze together a few thousand dollars to do this renovation then when we got into inspections i was realizing that this was like a 15 to 17 000 job and i mean we were gonna already be depleting our savings just to be able to close on the property so i was like okay well how can i make this work how can i make this a win-win and i i went back to the list age and i said hey what if we increase our price by this amount and we can negotiate a seller's concession that's what we did now seller's concessions there's a lot more rules around those than there were like a few years ago but we were able to essentially have the seller pay for all the renovations and we just got a bigger loan which for us was crucial in order to get the deal done so it started off as a bad thing but it turned into a good thing for those people who don't know what that means like to raise the price and stellar concession can you explain what that like give us an example of like number wise what that's like so i think initially we made an offer for 85 000 but then when we realized we didn't have you know 15k to do the work we said hey let's offer a hundred grand but then you give us a check at closing for 15 grand in cash so the seller is netting the same amount it's just that we're taking a larger loan and then getting that cash up front so it's a really great way for buyers that don't have a lot of money to still make a deal happen was that given to you by covering your closing costs in the deal no it was actually negotiated outside of the transaction so which again i think is like not a thing you can do anymore it's i mean okay that's why i was asking i just don't want lis i don't know that in every circumstance you can't do it i would definitely ask a lawyer because that is a good idea like you're saying we typically use that strategy when we're trying to cover the buyers closing costs to net them more money so that was definitely smart of you guys but just make sure that that's something that's still legal when people go to do that but i like how you think you're thinking outside the box the reason i wanted to have people like look at this in in more depth because this strategy of being able to get money back from the seller when you buy a property is something i've used numerous times i bought a mobile home park once it was like 1.1 million dollars and we bought it now granted this was a stellar finance deal but we paid 1.1 but we asked for a 100 000 in a credit at closing that could be used for whatever we needed for because to fix up the property and the guy was okay with it and so we did it and so we really only paid like a million for it but got a hundred thousand dollars like put into the thing uh which was amazing and i've done it in other ways it had been paid closing costs i've had them fix up the property and it goes back to one of my favorite strategies which is when i make an offer i usually offer two different options i'll be like i can pay you 85 you know 80 as is or i can pay you 85 or you know pay you 100 but i need 15 back uh in a credit or i need you to put a new roof on it or whatever it gives people that kind of multiple option things though i think it's just it's under utilized in the real estate space but i love that you brought it up because there are ways to do it even if like the way you did it has changed or the rules of change or a lender doesn't allow one thing over another if you just keep asking that question you'll find a way to get that through it's just a good kind of tool in your tool belt the other way that i i think about how can i get more cash at closing because that's such a problem for buyers starting out right buyers have more time than they have money so it's like how can i put enough money together to even close a deal in the first place so so we talked about the seller's concession but another real strength that i had was the fact that i had my real estate license there's so many benefits so when we were depleting our savings accounts to purchase a property i was representing our us as the buyer's agent so that meant at closing i would immediately get a commission check back for thousands and thousands of dollars sometimes it'd be 10 grand that's money we didn't have before and that would be that would go towards the down payment for the next property and really is the primary reason i was able to scale so quickly we went from zero to 38 doors in two years because of that yeah that's one of the really good reasons to have like there's not a lot of good reasons in my opinion to have a real estate license if you're getting into it just investing but that is definitely one of them is that that money you get back as being your own agent david i'm curious of your thoughts because you are an agent you also just wrote the book sold you're teaching agents all the time how to do this better what are your thoughts on becoming a real estate agent for that reason for getting all that money back because i know i i go ahead and every time every time i see my agent like make all that money i'm like oh i could have totally done that i could have been an agent and got that money but people like brandon think that agents shouldn't get paid because nothing i know that does come up a lot so here's what you're not seeing is how much money those agents are paying to hold their license and how much time they're spending they're not being compensated for what i would say is if you're someone like rachel who's doing a good number of deals like there's enough volume you can actually write down your expenses with being an agent and determine if you're going to get a positive roi on that and maybe the bigger component of why what rachel's doing is so smart is i haven't heard rachel say well i i negotiated fought to get the price down though i'm sure that that happens rachel you recognize that i only have so much capital available to me i need to structure a deal in which case i can save as much of my capital as possible to buy the next deal and if i have to pay a little bit more and borrow money at four percent interest or whatever that's fine so but being able to get a commission as an agent really just reduces how much money you're putting in of your own and the same is true of you getting that fifteen thousand dollars back i think that's incredibly smart and i want to highlight it to the listeners that if you don't have a lot of cash the way you put the deal together actually makes sense it's not just the overall price that matters exactly exactly yes thank you david let's talk about management then from the beginning were you managing your properties yourself or did you hire someone to do that we were yes we were self-managing from the beginning because we had the time and i always talk about rental income is passive income but it's only passive if you have a property manager so you have to keep that in mind but for us it was more important for us to learn all the ins and outs of managing our properties and to continue to save money at that time because money was at the time our our biggest resource that could get us ahead and then it turned into time later so we we did start off self-managing but once we got to 26 units um so keep in mind my husband and i were working full-time we were acquiring properties and managing our rentals on the weekends and i was writing my books in the evenings so once we got to 26 units there was no way we could do it on our own anymore we made a pretty big mistake here this is i would say the biggest mistake we made as investors and my flaw is that i tend to be too cheap too frugal and when you take frugality to an extreme it really can hurt you it can it can bite you in the long run and that's exactly what happened so my thought was well instead of hiring a traditional property management company we had a couple people that had been working for us it was a husband and wife they did things like cleaning the common areas maintenance lawn care they were the hardest working people to this day i've ever interacted with they always went above and beyond so my thought was why don't we give these two a chance we'll make them employees of our company we can save a little bit of money and we can be more direct and hands-on with the way they're doing things so that's what we did it started out great sounds like a great idea yeah well thank you in hindsight to me it sounds it sounds naive but this is why i like to share this mistake so other people don't make it but it started off great and then six months in things just started slipping and i was just like what's going on they're not doing as good of a job my husband went to collect the rent from our on-site lock box one saturday and he noticed that a lot of rent was missing this wasn't just the typical tenant paying late it was a significant amount so we're calling them of course they're they're mia we never heard from them again they stole six thousand dollars in a rent rental income just that weekend and we found out that they had been squatting in vacant units and rooms in our properties for almost a year which is just such a violation it's just so gross so the you know the moral of the story is this isn't the place to be cheap and cut corners if we had hired a licensed bonded qualified insured property management company and their employees had done that to us they would have been liable for the damages not us so sometimes when you're that cheap you think oh i'm gonna save money but it costs you a lot more money in the long run so that's my that's my rookie mistake that's the worst thing that's ever happened so far knock on wood but there you have it that i i love that you shared that because that like you know it's a vulnerable story but we've all been there i know david david you had a terrible first experience getting ripped off from your property manager didn't you or a tenant or something like that it was my tenant yeah so i bought this house and it had been worth about 600 000 and then it went down to i bought it for 195. so the taxes being collected on it were about three times more than what they should be so they collect that in escrow then the title company will kick you back a check for your refund once it's been reassessed well they sent it to the property not to me they assume that i bought it as like a primary residence but his investment property so my tenant cashed the check forged my signature and then paid me rent for the first two months with my own money and then completely stopped paying that was how i learned real estate investing wow and rachel you're bringing up a great point because what you and i both did wrong when i manage my own properties was we failed to take into account that there's a financial uh component of risk that needs to be taken into this that you took risk when you hired these people that you took that upon your shoulders and when we don't understand like the property management company having to take that risk needing to be licensed and bonded or like brandon said why is my agent getting all this money he's not seeing all the stuff that that person's having to do or the risk the brokers taking on having you know arizona mission insurance and everything else we tend to think oh i can do it myself and then you get in there and you realize oh this was a terrible idea because you just didn't realize it so we'll never know every right move or wrong move to make but it is smart to when you're having those thoughts like i should do this myself i'm cheap because rachel i promise you i'm just like you it was a long time before i stopped stepping over dollars to to pinch pennies and what i had to force myself to acknowledge was i don't see what goes on behind the scenes so let other people carry the risk and i'll focus on you know more dollar producing activities just so you know like this is something i struggle with still to this day is like hiring the right people at the right price to like do the right work you know like i still want to try to find a cheaper way to do it that's how i you know i was young and scrappy just like you know you guys were and it's like let's just hire that guy he can do the work you know it sounds like a good idea so six months ago i hired an electrician guy to come over to my house i have a pool here and he was doing some electrical work but it wasn't like i hired an electrician it was a guy who was a friend of a friend of some guy who knew somebody who came over to wire something down by my pool and then we just found out the other day that he disconnected one other two of the wires that were supposed to go to the pool lights to make it safe so in other words what we found out was that if at any point water would have leaked into the uh any of the underwater like lights in the pool the circuit breaker would not have tripped and it would have just killed who's ever in the pool for like the last six months and like we swim in there every day my kids are in there every day and it would have just killed whoever was in that pool if we were swimming with the lights on and something happened and it's like that's what you get for hiring some random person not the right person and like yeah crazy like my stomach just twists when i hear that still i'm like i cannot believe like twisting because we're acknowledging how how scary that was but the reality is how many other things are going on in our life where it's that way and we don't know because we're not talking about it yeah like brandon you're just acknowledging this one story but how many of us that are listening have the same thing we're doing and we don't know that we're swimming in a pool without a circuit breaker yeah it's crazy like yeah hire the right people do the right thing i've done it with property managers i've done it with contractors i've done it with i mean everybody like find the cheaper way to get things done and it's seldom the right move uh so i'm glad you brought that up rachel cause i still struggle with it too yeah yeah it's it's tough because like it's like i there's this guy we call them felon tim because fell into him i didn't get that name yeah exactly and like my mentor like the guy who i learned real estate from like that was his painter it was like like you hire felon tim but paul and tim didn't have a car or any equipment or anything but he would paint any house for 300 bucks like the entire house would be done and so like i'm pretty sure my my buddy still uses felon tim to this day but like there were times where like he would paint and i'd come over and he just like didn't tape off the floor and would like just paint the floor with his paint sprayer and i was like just paint the carpet because that's just like that's what you get for 300 from fellain tim so anyway well i like that we're diving into the mindset of this because what it comes from and i'm sure you realize this too rachel is we got ahead in the beginning by being frugal we didn't have many options we had limited resources so we had to stretch we had a top rom in our way right through those first five years or so of investing and now that we're in the point where we can hire the right people and we can make sure we don't get electrocuted our brain still tells us no this is what you have to do to be safe and it involves a mindset shift into a different way of thinking which is what we're all you know more or less struggling with when we talk about this exactly i mean it's a time versus money trade-off and in the beginning all investors i see and that i work with they have a lot more time than money so we're doing things like self-managing trying to fix toilets on our own i mean we're hustling and we're scrapping that's because we have to be but then when you start building wealth and you have cash flow coming in it's like you can't have that mindset anymore because you'll hold yourself back in other ways because then time is your most precious resource and you can't keep growing and scaling if you're going down to your property three times a week doing some maintenance issue so it's hard it's hard making that mindset but once you do that's what allow you to keep growing and scaling so now coming out the other side let me ask you a question and i'll fire this up both of you but rachel specifically now that you've done that do you feel like here's i almost feel like the idea of you we had to do that in the beginning is that a limiting belief do we actually have to do that or could we have started with where we're at right now the level that we are we're all thinking mentally right now could we have started there or do you really think that we had to get there because we'd have the money yeah that's a really good question i think there were decisions i made that were poor decisions because i hardly had any money so it was operating out of a scarcity mindset and but i probably would have been better off if i could make those decisions differently even if it meant giving up more money at the time in the long run operating out of an abundance mindset will serve you better so i don't know that's a tough question though yeah it is tough because i don't know if you can get the mindset like my coach's name is jason juries right he talks about this all the time he says like there's these levels that we're at mindset wise level 2 level 5 level 20 level 30 right and if you can operate a level 30 mindset like which let's just say that's where we're at today in terms of hiring the right people at the right prices and managing people and teams and all that can you get to level 30 without having going through level 1 2 3 4 5 10 20. i don't i don't know i suppose you can if you adapt from somebody else david what do you think on that i think the short answer is it's a matter of faith that when we're on this side of it we realize we could have but when we were there we didn't think we could if we had more faith when we were in that point that hey this is going to work it will i do need to think that's a better way to think we all recognize that it's like it's the difference between eating more expensive healthy food versus eating junk food that's cheaper we know that the cost will be more to eat the cheaper food even though it appears cheaper in the moment but it's hard to have enough faith to believe i need to invest in myself when i don't have as much money so the reason this question is relevant is because now we're all in a mindset that isn't where we're going to be in 10 or 20 years or more levels of success so can we go back and learn from those lessons we had and say okay well right now where am i doing that still and can i have enough faith that if i pay the right person do the right thing make the decision that feels scarier that it will be better for me i'm really glad brandon that you brought that up and rachel that you brought us into this point this is a really good interview yeah i i'm gonna have to do some more thinking on this maybe i'll do a whole solo show on this david sometime just about the mindset needed to get into it because i'm even thinking now like okay what mindset am i gonna be in 10 years from now and what do i do i have to go through the drama and the pain of the next 10 years or can you skip to that point and just start living that way now i could think of like matt uh on a frio right like we had him on the podcast 27 year old like anesthesiologist i was just hanging out with him in tahoe yesterday and i know exactly where you're going the guy starts from like no like oh i don't do any real estate too i'm making millions of dollars in real estate within like a year period right why because he already had a level 20 or 30 mindset that he had from his previous careers or because he listened to a lot of the podcast or hung out with people who were at that level and so i think you can adapt that level quicker if you surround yourself with the right people and recognize that you are not at the level you are going to be glad you shared that though that's very helpful for all of us that are listening right now and everybody who's listening to the podcast is that the mindset is the number one x factor with how quickly you get where you're trying to go so rachel let's bring this back to where where you're at do you remember a point in your journey where your mindset did shift where either you felt more confidence or you recognize this is the path i'm going to walk everything happened so quickly for us that there wasn't even time to think for for those two years so it wasn't about oh i feel much better about this now it was just like get the next thing get the next property get the next property i do think though 2018 is when we stopped acquiring properties so we're not actively acquiring properties anymore a lot of investors will ask us well uh you know why aren't you building an empire you could be growing a real estate empire and that's that's exactly right i could be it's just that that's not my goal that's not what i'm passionate about and that what ultimately fulfills me real estate investing for us has always been a means to an end once we got to a point where we were generating 10k a month in profit from our rentals for us there was no point in continuing to grow because that was enough money to cover our living expenses and so at that point we were retired we were financially independent so then it became about how do we become more efficient with our time with what we already have invested with our real estate and now we're so we're at the other end of the spectrum where time is truly the most valuable resource for us so we're even starting to think about selling some of our properties to invest in something even more passive like real estate syndications so i'm totally nerding out about syndications right now that's my favorite thing well come on in i'll take you i'll take your money it's okay yeah open door capitals crushing returns i've been looking into it so if i hear you correctly you're not giving up on real estate investing you're giving up on the asset class or the way you've been doing it thus far exactly and part of it too is i mentioned it earlier but last year we moved from kentucky to colorado we'd always wanted to move out west we love the mountains we love hiking and once we physically were removed from our properties it just has it's like out of sight out of mind type thing and even though we could hire a property manager at this point it's just we just feel this is the right next move for us because we're not doing a good job we're not doing them justice so it's like let's get out of these and let's get into something bigger and that makes makes sense for our lifestyle and our values i want to go back real quick to the mindset stuff then i want to go into how you built the units because how you built that portfolio and the way you financed it and all that but i i don't want to leave the mindset thing quite yet what mindset do you feel like what mindset or plural mindsets have served you well over the past decade or half a decade while you've been building this and which mindsets have you had to outgrow i've had my mindsets have grown from limiting beliefs they have come from limiting beliefs so i already talked a little bit how i was little my family didn't have a lot of money and it was just kind of the comparison game and i had a lot of fears coming from that situation i was always scared there wasn't ever going to be enough money money was always a stressor and i had this fear that i wasn't going to be able to support myself financially or worse be able to support a loved one financially if they needed it so my initial instinct to become financially independent was truly because of the way that money was handled and viewed in our household as a child later on in my careers there were so many different situations of the way employers were treating me where i was like i have had enough so i can remember distinctly working for the for a female boss and this was in one of these real estate stints that i had i was i was maybe 22 at the time she came into the office and she said hey where's the letterhead and i looked at her and i said what letterhead because you know i in nine months working there we'd never use letterhead and she looks at me and she goes like i'm stupid she goes the letterhead like okay thanks for the explanation so i'm frantically searching on the computer trying to print out letterhead for her she's literally standing next to me tapping her foot with her with her arms crossed like this is not an exaggeration and then after 10 seconds i guess she got fed up so she marched to this dusty shelf behind me and took out letterhead from a place i'd never seen it before she holds it in front of my face and she says what do i even pay you for and it was just vicious it was it was just i was 22 and i was being bullied by this woman at work who hadn't even taught me anything and she had made her employees cry before she made me cry a couple times unfortunately and i just remember one time when she made me cry i went to the bathroom and i was looking at myself in the bathroom and i just decided right then i am never going to let an employer treat me that way again i'm never going to be trapped because of financial constraints so that's what really got me going and being like enough with excuses enough of me saying i don't have enough money i don't know enough i'm gonna make this happen and i got invested by age 24. i want anybody else's ability to affect my happiness like in my enjoyment my fulfillment in life i know it still plays like any any argument i have with anybody ever like any kind of like disagreement i have is always because of that because somebody's trying to somehow tell me what to do in some way shape or form or making me feel a way that i don't want to feel and so like yeah it's a powerful motivator like like yeah i'd say that's your most powerful motivator brandon if i want you to do anything just tell you you're not allowed to do it yeah reverse psychology yeah exactly that's funny all right so how did you build that portfolio then you bought all the units what type were they are they multi-family single family then let's get into the financing side did you just save up down payments yeah for sure so we started off with two single families that we had because they were both of our prime previous primary residences so we didn't buy them intentionally as an investment property but they turned into one then we bought the duplex um and then after that we bought three buildings that were 10 to 12 units each so we scaled very quickly we we did finance them all with 20 down payments saved up money yeah but it still was a lot i mean but at the time my income had grown i was making closer to you know between 75 and 85 grand by then and then combined with my husband's income we were earning six figures so if we were saving half of that i was during the commissions and we were saving 100 of the cash flow from all the previous rentals that's how we came up with massive down payments over and over again if we couldn't do that we would have done the burst strategy thanks to david green it's like the uh the income snowball i think somebody mentioned our show before you just and it's funny because when i look back to my initial strategy that i had my initial strategy was to buy a single family home every year for 15 years all on 15-year mortgages you guys have heard this before and then i was like okay by my mid-30s i'll be retired so that was my initial strategy but once my husband and i kind of put our heads together in our money together this happened so much more quickly than i ever would have imagined so it is it's the snowball effect of income you said something that i really liked and it had to do with the smattering of different ways you put your portfolio together you had a couple properties that you just kind of fell into you bought it as a primary residence and then you rented it out so as a side note every time i buy a primary residence i always make sure it's a property that could be house hacked or could function as a rental property a lot of people in expensive markets will say well they don't cash flow so you can't make it work but they're just buying a three-bedroom two-bathroom house that has no unique features that would make it a rental then you got into the 20 down method then you moved into something else what i love is that you didn't wait to get started until you knew exactly how this was gonna work you jumped in there and you sort of evolved with what you're doing and that even means getting out of the asset class that you were in and into a different form of real estate investing and that's so important to highlight to people because this is how people that build portfolios do it they don't wait until they have every single domino lined up perfectly and push over one they all just close really cleanly would you agree brandon everybody obviously has a little bit different approach there uh but mostly yeah i think that it just you line them up and knock them down you don't always know the answer at the end of the day rachel what do you think i mean yeah if i had waited until i felt ready like that's i almost want to laugh right now like if i had waited until i felt ready to get started i'd be dead before i owned real estate and and that's another mindset thing brandon is that we focus so much on consumption right we we want to learn everything there is to learn we want to listen to podcasts we want to read books all this stuff but if you can't move from from consumption to execution and acting on that knowledge you will never get to where you want to go and so something that was hard for me is so i'm a perfectionist i'm a control freak and i was really scared to get started investing in real estate because i'm like well what if i lose money what if i do something and i waste my time what if what if what if the thing is i had to accept the fact that i was going to lose money i was going to waste my time and not once but throughout my entire real estate investing journey i had to accept that fact once i did i was finally able to get over that mindset that limiting belief and i was i was able to just start taking action and that's the only way you're going to become successful as a real estate investor so rachel from the first property you bought until the point you could retire how many years was that two years you were able to buy enough properties that you were able to just say i'm dropping the mic and i'm retiring we bought properties that were really unique i haven't ever talked about this on podcasts before but i want to i want to deliver the goods here so we our second property after the duplex that we bought was an 11 unit multi-family the way that i've never seen a property structured this way it was basically a quad it was a four-plex but the owners at the time were renting out the bedrooms individually it was something that's that's now called more of a boarding style house but the cash flow on this thing when i saw these numbers i was like there's no way there's no way that this 430 thousand dollar property is generating 86 000 in rent revenue and then they showed me what they were doing and i was like this is the most brilliant genius thing i've ever seen so so that's what three of our buildings are there's these properties that are rented out by the bedroom the tenants share the kitchens and bathroom areas and we're able to squeeze like way more rent out of it than we than we would have otherwise so how do you manage that i mean we've talked a few people on the show before they've done you know student housing or you know somewhat similar somewhat similar things but it's always a hassle to manage it sounds like it is it's a lot more work and that's part of the reason that we're thinking about selling those and get because at the time the cash flow was incredible we were making 2 500 3 000 in profit per building but it was a lot more work i mean because you have tenants that they're like kids right this guy stole my food from the fridge this guy won't clean up his dishes whatever so you're kind of constantly have to not not just be a property manager but be a theater a therapist for these people yeah and being like okay guy kids you know let's let's figure out how we can handle this situation as an adult um the turnover is a little bit higher because we're not doing traditional one-year leases it's just a different and unique way to run them and then again they still cash flow amazingly well but it's just not worth it to us anymore are you still managing yourself in in that regard or do you have a property manager or another couple that you got to to handle this stuff somewhat once we moved out to colorado we have a family member in town that were paying to help us be there you know just do things that we would only trust that person to do and we have different people in place now i mean one great thing about being a long distance landlord it used to intimidate me i used to think no there's no way i can do that what we've realized though it's actually easier to manage these properties from a distance because when we lived in louisville we were running down to our properties twice a week whenever something happened now though we're forced to outsource that and to have reliable people in place which if we had just done that from the beginning it would have been a lot easier but it it forced us to do that when we moved away that's one reason that i love long-distance investing like you know david green's book is because david you make that point in there like long-distance investing you are forced to have good systems it's like put up or shut up kind of like you just can't survive without it you can survive if you have a local rental you can survive without with terrible systems and processes and awful people you can do it just by limping along for decades i mean so many landlords do but the minute you go a long distance like it revealed i mean i had that property in in ohio and cincinnati and the property was fine but like i've told the story before like i just did not have the systems or the people the core four as david says to be able to manage it and i wasn't taking the time needed to manage the people that i did have and so it revealed it very quickly like yeah this is not something you should do so i got out of it the guy who bought it just doing super super well with it because he's there and he can do all those systems but uh yeah i don't know it's been it's it's a fascinating thing when you move out of an area well i think rachel you're hitting on a deeper truth about how business works in general and this is something i've learned through being an agent when you love what you do or at least you can tolerate it it's not in your own best interest when you like fixing toilets or you like to be the person that shows up and fixes the light bulb the temptation to do that every single time is massive and you'll trick your brain into thinking i worked hard today because you went to your property and you put in a light bulb or you fixed a leak or something but you did nothing to get your next deal you did nothing to move the needle along the goal which was for most people is going to be financial freedom it's this like sweet tempting siren that pulls you in and i see this with real estate agents because they love the job so much that they never leverage off parts of it they never grow part of why i spent the last two to three months traveling hanging out with brandon in hawaii and my team's doing good was that to be frank i didn't love being a real estate agent i didn't like it which motivated me to find people that were better than me and say you do this part you'll be better for here you'll do a better job for our clients and i operated it like a business and and that's just something to be aware of if you're like oh my god i love analyzing deals you can spend all day long analyzing deals and never offer on any of them or pursue them because you already got your dopamine hit just by analyzing it so we're always afraid of the things we don't want to do but we should maybe be afraid of some of the stuff that we like to do because that's the thing that will sabotage you that you don't see coming you are so right and to your point david there's a question i now ask myself to decide whether i should be doing the thing or somebody else should be doing the thing and that question is is this a revenue generating activity is it going to generate revenue to go fix the toilet or to manage my tenants no it's not those things need to be outsourced is it a revenue generating activity to go make offers and drive around and look for your next deal yes that's what you should be doing so here's what the point i think we're getting at here we can just sum up i think everybody listen to the show should take a month or two just come to hawaii and hang out so that we could all they could all see what their systems are breaking down and what they should be doing or not we all agree everyone's just come to hawaii all right we're gonna get a quarter million people here right now no but on that on that point like a couple of buddies of ours um alex camacho who's been on the podcast before uh alex was in southern california and just has been here now for a couple months uh investor girl brit uh brittany arneson has been on the show she's did the same thing uh taro yarber who's a big bigger pockets contributor same thing came to just like left for a while uh during this whole coven mess as it both won a way to enjoy this time more but two it's to put their systems to the test and to force themselves to start thinking like an owner rather than an operator and for all three of them they're just crushing right now uh in their businesses and making a lot of positive changes because it it forced their hands so so i i joke about it but maybe it is time for some people listen to this show right now maybe it's time to say you know what i'm gonna pack my family up and go you know go to costa rica for a couple months or i'm gonna go and go to nebraska for a few months like maybe it's time to force yourself to get out of your bubble where you're managing everything and go see what you actually have built so there's uh some encouragement for people or maybe some people right now their stomach has got twisted because they're like oh man i know he's talking to me right now so use it all right so tell me rachel about your books real quick i'm just curious you mentioned you you wrote some books what are you writing yes in 2017 which is the same year i started investing i started writing books so i wrote my first best-selling book money honey um the reason i wrote it is because i was a financial advisor before and all my family and friends came to me for financial advice which was great that's what i love to do i also had this aha moment where i realized oh yeah like personal finance is boring right it's for most people it's intimidating it's dry it's complex no wonder they don't like to learn about it on their own so i thought to myself how can i make this topic sassy and fun and simple and that's when money honey was born so that's that's why i wrote the first book money honey and it has almost a thousand reviews on amazon now before you go on the next one what's the gist of the book like what's the idea who should be reading it it's about money management so it's the basics it's saving debt investing and i really wrote it for female millennials although all different types of people read it but that's who i'm kind of speaking to i can't think of a better person to write that book for millennials than the one who was reading rich dad poor dad while her friends were reading twilight well i might have read twilight too you were born for this reason yes thank you um and then my second book is called passive income aggressive retirement and i just got so obsessed with this concept of passive income money that is earned with little to no ongoing work it's definitely not a get-rich-quick scheme it sounds that way but it's not i mean it takes time or money to create passive income but the epiphany i had here was once your passive income exceeds your living expenses you're retired you're financially independent and to me it felt so much easier to generate five or six or eight grand a month in passive income than it does to try to save a million or two million dollars by age 65 in order to retire so that's what that book's about i basically outlined 28 different passive income models so trust me when i say that anyone at any age can absolutely create passive income brandon don't you have a theory or a definition of the three levels of of uh retirement like financial freedom my jet one uh yeah i always say like there's like three levels of financial independence there's like you can like fly in a jet meaning you can get and go and do your thing because you don't have to have a job you can be a jet setter whatever uh level two is like you can buy a jet so those are like the david osborne's that i know like that like super wealthy people who just go buy a jet and then there's like the i can buy the new york jets right like that level of financial uh independence and wealth uh and for everybody that's different some people want to be the guy that owns a private jet some people want to be the person that owns the new york jets and some people just want to be able to travel and be able to hang out with their family more often so having that self-awareness to know which level you want is just super super important i'm reading that book right now by patrick bet david that's called your next five moves and it's all about like like the first section is all about that self-awareness knowing what you want and what you're willing to work for and what pain you're willing to put up with to get there so yeah but that level one financial freedom that just you know be able to quit your job pay your bills it's not unattainable if you want it bad enough if you have a plan in place if you work hard to get there and if you're aggressive like you said i like the word aggressive that's that's again aggressive retirement all right well let's move this thing along toward the next segment of the show it's time for our deal awesome this is the part of the show yeah where we dive deep into uh one of your deals now i know you've kind of explained all of them but i thought maybe we'd pick one to dive in a little deeper uh so let's go there now number one by the way do you have one in mind that we can we can dig into the numbers yeah i've already talked about a couple so i'm thinking let's do okay yes i have one in mine all right so first question what kind of property is it and where's it located that's really two questions but all right so this is in louisville kentucky it is it's one of the now 10 to 12 unit buildings that we have okay but when we bought it it was a duplex so we converted it into this boarding style yeah it was a huge i mean it's over i think 3 000 square feet so we converted it i like big houses and i cannot lie how did you find it this was the one where i found it on the ml list mls and it came up and it was 125 grand the top floor was a duplex that was being rented out the bottom floor was an office space and when i saw the potential how cheap it was first of all that was a real i don't know why it was listed for solo but then when i did the math and i i realized i could convert those spaces into like five or six bedroom units i was like oh my gosh this is gonna be the money maker and it has a whole third floor that's unfinished that we haven't even gotten there yet so that's that's what it came in at was 125. i was down there at the property literally within 30 minutes making an offer on the phone for full price how did you find it just mls yes real estate agent or something yeah it just happened to come up i had to search saved or whatever i just happened to be looking at at the right time all right you said how much it was it was wait did you see how much it was 125 grand that's right you did say how much it was okay so negotiation was there any other negotiators other than just offering full price did you have to go back and forth at all not really i don't remember there being any intense negotiations i mean i made a strong offer because i recognized if i didn't they would be getting other offers that day i just knew the other thing that complicated the situation a little bit is that because it was an office space it was actually zoned commercial so we i we did have to get a commercial loan on that which i didn't realize at the time but i kind of learned later on going in all right so how did you fund this deal this was just from savings so we came up with a 20 down payment and then we got a commercial loan or it might have been a 25 down payment because it was a commercial loan and then what did you do with it you then divide up the bedroom so i'm curious how did that all work how many total units did you get out of it and then what's the average rent on a bedroom okay so it's now 11 bedrooms and the the renovation process was an absolute nightmare this was the worst renovation i had ever done and it sucked because that duplex that we bought that first one we had this guy do the whole renovation he was amazing the thing i did then though is i was at the property every single day i was bringing them gatorade and bagels and they loved me and they knew that i was going to come and they knew they better be working at this property by the time we bought this we were so overwhelmed we absolutely could not take time to come to this property every day so maybe we got there once a month which is horrible i mean that's a really bad thing to do and what was supposed to be i think you know a four to six week renovation was like a four to six month renovation and we went way over a budget not to mention the holding costs but we went way over budget on the renovation itself so luckily though the way that i run my numbers i estimate things so conservatively that it still ended up being pretty close to what i initially projected so it still ended up being an amazing amazing deal um what was the initial question did i answer it yeah just yes what'd you do with oh and what what the rents gets for each unit we renovated it into 11 bedrooms and they're on average i would say they're 130 dollars per week we do weekly rental so it adds up to something like it's almost 80 grand a year in revenue they pay weekly or they still pay monthly i mean they there's every week they drop off a check they pay weekly it's all online now it used to be like our on-site lock box but now everything's done through online how often do people stay at a thing like this like how how bad does it turn over on it depends i thought that turnover would be horrific but we most of our tenants stay for years i mean we even bought some of these properties that still have tenants in for in them from the previous sellers and they've been there for three five years so i would say half of them end up being really long-term tenants the other half maybe they end up lasting their first six months or so i want to be careful with this question but what what type of people are these you know i mean like are these like really really like poor like just out of rehab kind of like people or these like hey i just work at a job and i want to live as cheap as possible so yeah it's it's it's definitely a mix we don't have students we've had one student but it's mostly blue collar work workers so and we've had travel nurses before travel doctors because they're looking for a short-term lease and we can offer that to them furnished bedroom all that stuff it's easy for someone to move into but it's just it's normally somebody that you know they're not making a ton of money and they just want a simple solution they want a place that they can live where it's furnished they have a tv they have a nice kitchen and bathroom and they don't have to worry about any of the other costs except for paying their rent last question i think then well actually we got two more okay so what was the outcome the outcome is that you make a ton of money we made a ton of money this building is probably worth 300 grand now because of how much how much income it's generating um the cash on cash return i think was literally 30 for us and it's been just an enormous money maker for us so all in all great investment even with the horrible renovation yeah all right so what lessons did you learn from this deal overall what can you pull out and say this lesson just demonstrates this or i learned this i think be creative don't take something at face value so when you see a property and the way it's being run now that doesn't mean you have to keep running it that way it's like how can you either increase the the rent revenue of what they're already doing and how can you decrease expenses so i think if you can approach it that way and just be creative and imagine a way that you can run it where you can generate even more revenue that's when you can start finding good deals because you're thinking outside the box and you're going to do something with that property that another investor wouldn't so you can pay a little bit more for it that makes a lot of sense what really what what i like about the strategy is it's like it's like buying what's the whole thing like buy by the yard sell by the foot you know like you're taking a a property that you're just taking the whole thing dividing it up it's cool i mean it's obviously a lot of work um to renovate and to be able to get the system right to manage it but especially like you mentioned earlier at your level uh like where you were at the time it was perfect for it and now like you're thinking okay now we're at a different level different spot in life maybe we'll unload this and get into something different and that's just like the life of an investor right i was actually just talking with my property manager jesse who uh we sold our mobile home park that was in uh maine bangor maine the one that mindy jensen and her husband me and ryan murdock bought together we sold that uh we made a really good return it was it was amazing it was one of the best deals i've ever done and we're talking to uh jesse the property manager about it and he goes yeah the guy who bought it is so excited about this thing because it's perfect for where he's at right now in his investing even though you guys like it was perfect before and you got it to a point where it's stabilized it was fully occupied we took it from 30 to 50 units or whatever like we that was our that was our thing and then it became you know the next guy that his thing was a different level so in other words like what's great about real estate is it's all like uh it's different phases of an investor's career work for different types of investments at different points in that investment thing and so there's in other words there's so much bloody opportunity out there for people because like even in a hot market like today there's things to do because you're at a different stage than somebody else's so anyway i think that's encouraging yeah no because i agree 100 and another lesson from that brandon is don't invest based on what other people are doing like don't see this amazing successful real estate investor with this huge an empire and think i'm going to do exactly what he does because he has different values than you he has a different time versus money trade-off than you so it's about okay what are all these different ways i can invest and which one works best for me with that it's time to get to the last segment of our show it's time for our famous four the famous four is a part of the show where we ask the same four questions every week to every guest so we're gonna throw them at you right now rachel so book or question number one not book number one i just gave a hint of what the question is question number one yes i think most people do at this point number one what is your all-time favorite or current favorite real estate related book well everyone says rich dad poor dad so i'll go i'll go with something different because i'm so obsessed with syndications right now it's the brian burke hands off investor oh my gosh that book should be 50 it there is so much value i'm not even finished with it but i just can't get enough so big fan yeah it is it is phenomenal yeah brian burke's like the man we're sitting outside like this this restaurant the cula grill out in lahaina and uh this is like three years ago and we're talking about him like raising money for his his uh his syndication practice capital and i'm like and i don't know you know what you should do brian you should write a book on like how to like how a sin how to evaluate syndications and how the whole makes this because then everyone who reads the book is gonna be like like who do i trust now how about the guy who wrote the book on how to evaluate syndications and raise money and uh i don't know if it's worked for him but it was uh that was the idea behind it originally and then he just like carried away and actually made like an incredible book it wasn't like a teaser like hey here's a few things to know you should invest with me like he was just like legitimately wrote like the best book ever written on the topic which also speaks to yeah that's just like brian's personality it's like i can do something or i can do it the best anybody has ever done it ever that's brian burke for you so he's a good dude that said question number two david green your favorite business book my favorite business book is the millionaire fast lane by mj demarco oh my gosh that book is so good such a classic it just oh it's so good it really helped me transition my mindset from like a consumer to producer mindset and understand why running a business and being an entrepreneur can help you build wealth so much faster than doing like a nine-to-five job so it just opened my eyes totally have you read his uh follow-up to that it's called unscripted yes yeah i love that one too yes that one was really interesting as well we're gonna get mg on the podcast at some point we we're just scheduling around but it's going to happen so that's awesome i can't wait to get here yeah that guy is legit uh anyway now i want to read these books they're so good they're so good yeah that millionaire fascinating i think yeah it was one of the books that changed my life so all right rachel what are some of your hobbies hiking and traveling so we've we moved to colorado essentially to hike i went on a nine mile hike yesterday am i seeing my foot now and i'm trying to climb my first 14 or 14 000 foot mountain um in the next couple months so that's what i love to do josh storkin and i went and hiked to 14er i'm not a hiker at all i hate hiking with a passion but he forced me to get up like 3 a.m and hike a 14 or in colorado back like a year and a half ago and it was as miserable as it sounds yeah yeah i don't know if i'm excited or dreading it probably dreading it but i still want to do it brandon can do that in 12 steps [Laughter] it was hard to breathe that's what the crazy thing was it was so weird to breathe uh that said so josh went and told me he told me that he's now climbed several of them and he started doing the wim hof breathing exercises which if you guys know wim hof at all he said it made night and day difference for him climbing he said he was never out of breath so wow do a little wim hof uh youtube searching yeah i'll do that on my next hike that's cool one random story we were on top of this 14 here i might've told this on the podcast before but i love the story josh now at the top just being like josh and i which if people remember the podcast before david was here it was josh and i just basically making fun of each other for an hour and a half every week straight and uh josh anyway so we're sitting up there just being ourselves like just whatever and some guy turns around because he recognized our banter it was like josh and brandon and like knew us from the podcast so oh my gosh that's so cool yeah apparently the way we are on the podcast is the way we are in life so random uh yeah all right moving on last question so josh had enough breath to just rip on you the whole time and you couldn't breathe so you couldn't really say anything pretty much i had to sit there and take it story of my life alright last question from me rachel what do you think separates successful real estate investors from those who give up fail or never get started i think it just comes back to that knowledge versus execution right knowledge is nothing without acting on that knowledge so it's really the ability to implement and to take action there's this quote by zig ziglar that i love and he said you don't have to be great to start but you have to start to be great thank you very much rachel for people that are fascinated with your story as it's very cool where can they find out more about you well thank you my instagram is money honey rachel um and my books are money honey and passive income aggressive retirement so you can find those on amazon and what i love to do with your listeners just to add some value is give them my passive income starter kit for free so even if you you know without reading my book you can see all the 28 different passive income streams i talk about deadly mistakes to avoid and a bunch of resources and tools so if you want to download that you can go to moneyhoneyrachel.com bonus very cool thank you we'll put that link also in the show notes of course at biggerpockets.comshow454 it'll be there as well but uh yeah this has been awesome thank you so much rachel really really good stuff today thank you both so much i appreciate it great job this is david green for branded mountain trekker turner signing off you're listening to bigger pockets radio simplifying real estate for investors large and small if you're here looking to learn about real estate investing without all the hype you're in the right place stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com your home for real estate investing online

Channel: BiggerPockets

Views: 97,513

Rating: 4.9565215 out of 5

Keywords: biggerpockets, real estate, real estate investing, investing, rentals, rental property, investing in real estate, income property, bigger pockets, passive income, rich dad poor dad, financial planning

Id: HiGNo19QIqo

Length: 57min 30sec (3450 seconds)

Published: Thu Mar 25 2021