425: Financially Free in 4 Years by Making One VERY Smart Money Move

0:00Welcome to the BiggerPockets Money Podcast, where we interview Matt Amabile and talk about house hacking with a 203k loan and journeying towards FI in your 20s. Hello, hello, hello. My name is Scott Trench and with me today is my co-host James Daynard from our sister podcast, On the Market. James and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter where or when you're starting. Whether you want to retire early and travel the world, go on and make big time investments in assets like real estate or start your own business will help you reach financial goals and get money out of the way so you can launch yourself towards your dreams.

0:42All right. We have a new segment of the show called the money moments where we share a money hack tip or trick to help you on your financial journey. And today's money moment is if you're thinking about taking a vacation, plan ahead and book your flights at the appropriately timed moments in advance. So for example, flights are generally the most inexpensive between four months and three weeks before your departure date. So book in that time period.

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2:10Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com slash disclosures. Support for BiggerPockets Money comes from Northwest Registered Agent. Your business identity is everything that shows what your business is about, from what customers see to what they don't see, like operating agreements, meeting minutes, and compliance paperwork. Get more for your business, more privacy, more guidance, and more free resources with Northwest Registered Agent. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years.

2:40They're the largest registered agent and LLC service in the United States with over 1 ,500 corporate guides, and they have real people who know your local laws and can help you and your business every step of the way. Don't wait. Protect your privacy, build your brand, and get your complete business identity in just 10 clicks and 10 minutes. Visit northwestregisteredagent.com slash moneyfree and start building something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com slash moneyfree.

3:30to whether you want a trailer hitch. Go ahead and get picky. Don't worry about scrolling endlessly. AutoTrader, powered by auto intelligence, only shows you vehicles based on what you can afford and what you want. And pricing shows you which listings are the best deals, so you can feel like you're winning the negotiation without negotiating. You can even choose how to close the deal, online, at the dealership, or a little bit of both. AutoTrader, powered by auto intelligence, makes the process of buying a car less of a process. Try it today. Visit autotrader.com to buy your perfect ride. Matt Amabile is a 20-something-year-old with a house hack and a rental portfolio.

4:06He created a goal to reach$5 ,000 in mostly passive income so that he could travel the world to live life on his terms. Matt has now surpassed that goal and is looking to expand even more. Matt, welcome to the BiggerPockets Money Podcast. We're so happy to have you. Scott and James, thanks for having me. I'm so happy to be here. Well, Matt, to start, can you tell us a little bit about yourself and your relationship with money growing up? Yeah. So I would say my big journey starts off in college. But if I jumped it all the way back to when I was like five years old, I saved up around$100 from a lot of money, like$10 from my grandma,$20 from my other grandma.

4:45And once I hit$100, I thought 100 was the biggest I could count to. So I thought that that was the most money I would ever get. So from that point, once I found out$100 wasn't the max, I was kind of like obsessed with money. I always thought about money. Then we jump all the way forward to college where I was going to be spending a lot of money to be going to school. Luckily, I ended up getting some financial help, scholarships through academics and was able to go to college for free. I went to community college for two years, got some more academic scholarships to go to Rutgers University for free.

5:24Then I came out of school. I was making$55 ,000 a year, not really a ton of money in the New York City area. Went on a European trip. I went out to Europe for around a month. I spent around$5 ,000 when I was over in Europe. And then once I got back from Europe, I was like, if I could just create$5 ,000 a month somehow, I could probably do this for a good amount of time on my own and go and travel Europe for the rest of my life, realistically, if I wanted to, or for however long I wanted to do that. So then life started. And I started working$55 ,000 a year, sleeping on my cousin's couch so I could save some money.

6:12and there comes a point where my girlfriend breaks up with me. I'm sleeping on my cousin's couch to save money and my life is kind of just like staring back at me. Like you're not making good money. You're sleeping on a couch. How are you going to get another girlfriend? Like everything was a mess. So I decided I was going to get off that couch, started learning about personal finance, read Rich Dad, Poor Dad, a bunch of different books, one of them written by you, Scott. And then from there, bought a house hack from that house hack, started partnering, buying more real estate, got to$6 ,000 in passive income, quit my job, went and traveled the world and started a podcast and started hanging out and doing my thing now.

6:54So that's where I'm at from five years old to 26 years old. So, Matt, when you were living on the couch, which I love that story, I definitely have my own couch surfing story and you're kind of figuring out life. you know when you're trying to live passively like you know you had this amazing europe trip you wanted to make five grand a month to pay for your lifestyle it sounds like you like to travel enjoy life what made you pick real estate with all the different avenues out there that someone can pick at that time right like uh what what made you think of real estate first right so so basically what it was is i googled the top personal finance books found rich dad poor dad And the thing that attracted me most to real estate was the predictability of the dividend that I would be receiving from real estate and just the financial sensibility of being able to get my rent fully paid for by my first building that I buy, have all of that paid for.

7:53That saves me, well, at that time, it saves me$400 because I was paying that to sleep on a couch. But realistically, it saves me around$1 ,500 a month if I can get my rent paid for. So that was my first thing. And then I was like, if I can make even more cash flow off of that, the numbers on these four-unit, three-unit, two-unit properties are pretty predictable and pretty easy to look at the expenses as well. So just for the dollars I was able to put in with that first three and a half percent down loan, that was my highest cash on cash return that would have been possible for me. So it just made a lot of financial sense.

8:31Matt, just real quick. So like that's a huge statement you just said, right? You're new into real estate. You're new into investing. You're trying to live passively. and then you made the decision based on cash on cash return which some people don't even get to those kind of analytics or even think that way for years being in real estate they're just like on a mission so like what made you get to think of it that way too because that's a huge realization for people like how do you maximize your cash on cash return make it stretch but as a younger guy what were you 25 at the time roughly uh buying my first property i was 22 22 right and that's when I bought mine too.

9:08How did that click for you? Because that's a huge switch to turn on. Yeah. So I think I've always had this idea of, I'm not going to try and reinvent the wheel. I'm going to follow the people that have done it, follow their path, see what they say. If I want to be in the position that someone else is in, I'm just going to do what they tell me to do. So that's when I started reading all these books. That was the Rich Dad, Poor Dad, the Craig Curlop's book, Rental Property Investing by Brandon Turner, every single financial freedom through real estate investing, Scott's book, Set for Life, all of these different books that told me, here are the metrics you should focus on to find a good property.

9:55So then it was just rinse and repeat, practice, do your work, put in the reps do your property analysis, I was probably analyzing like 30 properties a day up until like 1am in my cousin's living room using his computer because I didn't have a laptop myself, like running all this analysis to try and find properties. And it's really just following the people who have done what I want to do. So let's focus in on that first deal, right? So you're 22, you're making$55 ,000 a year. How much do you save up? How do you find this deal? You kind of hinted through all these analyses. How long did it take?

10:31And yeah, let's hear about it. Yeah. So it took tons of analysis. There were tons and tons of properties in the area that I was looking to buy. So I was in Hoboken, New Jersey at this time, and I was looking to buy in Newark, New Jersey, which you probably know isn't like a super great... And what year is this? So this is 2020. 2020. Okay. Yep. March of 2020, around that timeline. So I'm looking for my first property there, and I'm going to this area in Newark because there's high cash flow there. It made financial sense because I would be able to live free and clear, wouldn't have to pay for a mortgage, wouldn't have to pay for anything.

11:14It's free rent. And that's what meant the most to me at that time. That's like the bottom ring of Maslow's hierarchy that I could fulfill for myself. So that's basically what I was looking for. Couldn't find anything that I actually wanted to pull the trigger on. And then I started looking for, I actually took your method, Scott, right? So I used this performance-based job, job hopping method. And I started looking for other jobs where I could increase my income and move out of the area. Luckily, I found a job near my parents' house. And at that same exact time, as I'm going back to my parents' house, my dad says, hey, one of my buddies from high school who's a realtor in this area found a four unit.

12:00It's foreclosed. So I go to this four unit, which I'm in right now. It's my house hack. And I take a look at this place. I have no idea how to run renovation budgets. I don't know what any of that looks like. I just know that the numbers were working stupid well. And if this thing was fully rented out, at least at that time, this thing was going to gross around, I think the numbers were right around$3 ,000 while I'm still living in one of the apartments. And the purchase price, the asking price was$125 ,000. And what market is this? So this is in Phillipsburg, New Jersey. This is northwest New Jersey, right on the border of Pennsylvania.

12:39Right next to Philadelphia? Not next to Philadelphia. It's about an hour north of Philadelphia. Okay. So it's a pretty cleaned up area. It's about an hour drive to New York City, a little more rural out here, not as packed together. But so it was offered at, it was up at$125 ,000. And the numbers just, I knew my numbers. I knew what made sense. And I made an offer at$155 ,000 because everybody was saying, all the people that I followed at that time said, if the numbers make sense, you can make offers that are higher than the asking price if the numbers are there. So I made a$30 ,000 over asking price offer as my first property, and it didn't get accepted.

13:27And then two months later, they end up coming back to me. This is a foreclosed property. So the bank comes back to me and asks me if I still want the property. And this is the middle of a pandemic. So this is actually right before the pandemic. So I said March of 2020. That's actually right when I got in contract on the property. So I was looking and making offers on this property right around the December timeline, December, January, exactly when I put the offer and I don't remember. So then they come back to me. They say, we're good to go. And if you want this property, you can have it. And I said, yeah, I'll take it.

14:08So we went in contract at$155 ,000. Pandemic hits, all this stuff starts going crazy. It actually ended up taking us three months to close on this property. The bank was going to back out. During this time, I talked the bank down on the property, another$20 ,000 right around. So I pulled out, I talked them down to $145 ,000. And I had them give me a$10 ,000 seller credit, which FHA, the max was only like $7 ,000 that they could give me. So that's what they ended up being able to give me. And so, but then it was like this whole process of figuring out how much of a renovation this thing actually was.

14:51So it was a condemned property. It's a four unit property. The whole thing had to be regutted. I don't even, I like to say like, I don't even know how to realistically like swing a hammer. I don't know how to do all this work. And I ended up getting a bunch of guys to come out and it ends up being$120 ,000 job to get this thing done. So I start running the numbers even with the renovation. So 203k loan is how I finance this. And with a 203k loan, you are able to add in your renovation costs to your actual purchase price of the property, and they couple the renovation costs and the purchase price of the property into your full loan amount.

15:37So you only have to put down 3.5 % on that total amount. So of this$130 ,000, we'll call it$130 ,000 purchase price, plus the$120 ,000 renovation, it ended up actually... It was$145 ,000 purchase price plus the$120 ,000 renovation ends up being $265 ,000 that I needed to close on this property. And so I only had to bring around, I think it was like, it ended up coming out to$25 ,000 that I had to bring to the table because all these different fees that you run into with FHA inspectors coming out, you have a 203k inspector, you have an inspector for the bank that has to come out and they build an entire scope of work for you.

16:24So you don't build the scope of work. I like to call the 203K a loan on training wheels. You get to do this entire renovation, BRRRR, with someone from the bank coming out and showing you, walking through the property and saying, this is what you're going to need to get done. And this is what the prices should come in around. Then you go out and you get quotes from all these contractors, bring them back to this 203k consultant is what it's called. And you go over this with the consultant. Then if the consultant okays it, you go back to the bank and then the bank approves it from the consultant.

17:04And throughout the entire renovation period, the consultant is coming out, checking on renovations, making sure everything is done properly. The bank is holding back certain percentages from the contractors to keep the contractors in the deal. What was the ARV of the house hack? So the house valued at$400 ,000 after it was done and my all-in loan on it was$262 ,000. Awesome. Home run. Love it. Math works. Math does work. That's what it's all about. Hey, Matt, I have a couple of questions. Well, first, I love your story, right? Because that is how you change everything in life. I did the same thing.

17:44I bought my first home, house hacking. I wanted to save money. I went for the big value increase because I wanted to change and have impact on my life immediately. And a lot of people kind of do the slow roll, but you want that big equity gain or big cash flow that you're talking about. But when you get into that, I remember back when I was 22, it was like, how do you figure out how to get into that property without 20 % down? How do you figure out how to buy that fixer with the loan? And so when you were going through that process, right? You're working 55 grand a year. You went and got pre-qualified.

18:16Who educated you about the 203k loan? And was there any other products that you looked at that? And then you made the decision with the 203k to kind of narrow down because I know when I did mine, the 203k loan just wouldn't quite work for what I was trying to accomplish because the closing timeline was too fast. And so I did, I had to make up kind of make my own version where I had to bring in some private capital and blend it all together, but it was the same concept. A construction loan fixed the property and then I had to stabilize it. But sometimes that doesn't work for every scenario. So how did you pick the 203k loan?

18:48And was there any other options that you looked at that you just eliminated for certain reasons? So I knew that the 203k loan was going to be, realistically, it was the biggest bang for my buck if I wanted, as far as a cash on cash return was going for me. And at that time, I had limited capital. So I had to maximize that cash on cash return like we talked about earlier. But I found that 203k loan, it immediately like it was like magnetized like directly to it when I was reading rental property investing by Brandon Turner. He's got all the different financing types that you can go through. He's even got private capital in there, all these different techniques.

19:27So I saw that loan and I was like, that is going to be I'm going to be able to get an equity gain in this thing. And it's going to cash flow in my cash on cash return is going to be pretty stupid on this thing. And then I went to even like on the financing side, I didn't have all the capital to bring to the table. I said I needed$25 ,000. So for me to close on this property, I had$10 ,000 in savings that I used. I borrowed$8 ,000 from my dad. He gifted me$8 ,000. I actually told him he could have 25 % equity in the property. And then I bought him out of that 25 % equity six months later. I paid him back$12 ,000.

20:06So he got a 50 % return on his money. And then there was another 7K that I had to bring to the table to close on it. So I had 10 in savings. My dad gave me seven. And I had to bring another eight to the table to close on this thing. And I had actually read about using the Roth IRA and pulling out of your Roth IRA to a penalty free and being able to use that as capital for your first real estate purchase. So I did that. And crazy enough, COVID hits like a week and a half later after I pull out of my Roth IRA and all the stocks tanked. So it was like a perfect storm of me being able to use that capital.

20:47Yeah, and I love that part of your story. I heard that, that, you know, you brought in, because the biggest thing with these 203k loans or what you did was to build your career, right? And you had to borrow money essentially for equity or 50%. And people are like, oh, you can't pay a lender 50 % on their money. That's absurd. But you can because it changes everything. And it's like, don't get trapped on the cost of the money or whatever. It's just whatever it takes to get you into that deal. And is the end result going to change your life? And so it's that not being afraid to pay 50 % for that extra capital you need, I think, is something that's really important because people get that analysis paralysis.

21:29I can't pay that much, but you can as long as the structure works. Well, James, think about also how many people – let's be clear here. Matt is buying a$125 ,000 condemned quadplex in rural New Jersey, which I didn't know existed until this podcast. Go figure. And a lot of people, I think, are doing something similar on a nice fixed-up property in a nice part of town with their parents giving them a little bit of the deal there and not house hacking. And there's a huge difference in my mind between those two approaches. It's one thing to go all in on this bet early in life on a house hack, which I completely agree with.

22:11I did almost identical thing here, except I didn't use the 203k loan in my personal life, versus using this amount of leverage and borrowing for that down payment on the family home that's already all fixed up. So I just want to throw that caveat in there. I completely agree with you, and I think you agree as well. In the context of a house hack bet, this all makes sense. If you're buying your first house and it was ready to go, you'd be weighing over your skis and you'd be hating life right now. Right. And what I would like to throw out is that that debt wasn't really structured that way for me to pay it out.

22:44Because as I mentioned, I told my dad he could have 25 % equity in the property. And for me, it was like, this makes sense. In the position that I'm in right now, if somebody came to me and was like, hey, can I have$8 ,000 for 25 % equity in my property? I would throw it away like nothing. At that time, I thought I was getting a killer deal because my dad put down half for my brother's property and he got 50%. And I was like, I'm getting the killer deal because this thing is going to cashflow so much. So then at that point, I was like - You were getting a killer deal. That was a good - Right. Yeah.

23:20And I was like, I want to, but then I was like, I want to get 100 % cashflow on this property. This is my first property. The FHA or the 203k loan, 3.5 % down, any loan that you could get 5 % or under, that's a huge asset to have. And you don't come by those types of loans that often. So I wanted to take full advantage of that to get the biggest bang for my buck. I like your dad's style. He doesn't give out free money. He's a true hard money guy. I want half the deal. Here you go. I want half the deal or 50 % return. My kind of guy. He's good. He's good. Support for the show comes from Public, the investing platform for those who take it seriously.

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24:59Then you can invest in a few clicks. analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com slash disclosures.

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