From a $200K Duplex to Replacing His 6-Figure Salary with Rental Properties

0:00Brandon Turner:Real estate is not a get-rich-quick kind of game, but it is a get-rich-for-sure game. Keep at it, and it will eventually make you wealthy. Most investors get out too early, usually right before the big payoff. For 15 years, investor Philip Henry felt like he was treading water. He was doing all the right things, buying multifamily property every year, renovating the units, raising the rents, and then rolling his equity into the next deal. On paper, he was building wealth, but it was not showing up in his bank account. The stress was mounting and the workload was taking a toll on his health and his relationships were suffering.

0:35Brandon Turner:But that's exactly when the breakthrough came. A real estate deal that would single-handedly change his life. Philip bought it with none of his own money, and then he created enough value and cash flow to replace his six-figure salary. Today, he's going to pull back the curtain on that deal and the strategies behind it, plus the patience and persistence it takes to win in real estate.

1:00Brandon Turner:What's going on, everybody? I'm Henry Washington, co-host of the BiggerPockets podcast. And today, we're bringing you an investor story with Philip Henry. So let's bring him on. Mr. Philip Henry, welcome to the BiggerPockets podcast. Well, thank you so much, Henry. Appreciate it. Appreciate you having me on. Why don't you go ahead and give us a little background. What got you into real estate investing in the first, what were you doing before that? Wow. Well, originally from Canada, I went to chemical engineering and then moved to the US in 01 with my wife. And at the time, we had a new baby and started doing engineering work in Boston.

1:34And then just started reading books about real estate. You know, you drive by a golf course, and it's like noon on a Wednesday, and someone's in there with a nice car and golfing. And my dad always was working at that time. So I I was like, something's different about what they're doing versus what my dad did. So anyway, that's how it started. And then I bought a two unit. That was how I got off the ground.

1:57Brandon Turner:How long ago was that? That was in 2003, I think. Oh, man. Yeah. So you got a long investing history. Yes. I know it was a while ago, but it was your first rodeo in the real estate game. So why don't you tell us a little bit about that deal? What did you buy? How did it go? And then how did that propel your investing career? So a lot of the new engineers, new families starting up would get a single family home in Boston and then they're mortgage poor. And I just, you know, I was broke. I had no money, started out salary with like 40 grand or something like that. And$200 ,000 price point, two unit.

2:33We bought it. I think it was an FHA. I would come home from engineering school, go up into the second unit, sand floors, paint, rented that out for 800 bucks. So my costs went from$900 in an apartment to$450, and I owned the place. And then a year later, I sold it and left the closing table with a check, and it said like$50 ,000 on it. Yeah. I was like, I paid off my student loans, and that's when I was hooked. I was like, there's no way. I just made a year's salary by living in a house.

3:05Brandon Turner:So you did house hacking before it was cool, before it was a fancy name for it. You got it. How did that change or shape what you ended up doing next? Well, I think the first thing is it increased my belief. So like my belief that I actually could be a real estate investor, you know, that was huge for me. And then I got transferred up to Bangor and I bought a four unit right out of the gate. Same way, FHA, three and a half percent down. The seller carried closing costs. So I had very little in it. And I started with that. That was my next acquisition. Okay. So you house hacked that one as well.

3:42Brandon Turner:The first one, it sounded like you had some renovation to do. You were doing some of the sweat equity. Were you doing the same thing on the next one or was it more of a turnkey deal? It was a little bit more ready to go, but it still needed a fair amount of love. So it was like, you come home from the end of the day, pick up some supplies and grab your hockey buddy and tell them there's a six pack waiting for them. And off I went. When we talk about owner financing, a lot of investors understand, well, yeah, I can go to the owner and I can ask them to give me a loan since they own the property.

4:11Brandon Turner:But owner financing is bigger than that. Owner financing can be something just like that, where the owner just carries part of the loan, like the down payment. So, you know, with that being your second deal, and you know, how did you know to do that or how did that come about? So one of the things that usually stagnates people from getting off of their first unit is that, you know, you're capital poor, you know, it's hard to come up with 20 % savings to get another unit. So once I got that four unit, I was tapped. And then another like kind of worn down landlord had a, and I had a two building, 11 units.

4:45And I don't know how I came up. Like maybe it was a book I read and that it was an option. And he was a savvy investor. He had a bunch of units. So he, he said like, okay, yeah, I'd be willing to carry paper. And I was like, carry paper. What the hell does that mean? But once we got through that, he was, he was very open to doing that. So I, he carried the 20 % down payment that I needed, any carried closing costs. So I ended up taking another 11 units under ownership. And I walked away with a small check for prorated rents at that time. It needed a ton of work, but that's all I had for options.

5:18But I bought those two buildings for 200 grand and they just appraised for like 950. And I had no money in the game.

5:25Brandon Turner:My perspective on seller finance is that it has nothing to do with what you want and it has everything to do with what the seller wants. That's why it's called seller finance. And I have found it to be a more productive and successful conversation when I am focused on trying to figure out what it is that the seller needs. And then I try to structure the deal that gives them what they need. Now it's hard for them to say no. You said you wanted a down payment. I'm giving you a down payment. You said you wanted a 7 % interest rate. I'm giving you a 7 % interest rate. But all of the other factors of the loan, I'm tipping in my favor.

6:00Brandon Turner:100%. Right? And so I found that to be the most successful strategy. How do you go about approaching somebody and offering seller financing? Really, it's to your point. You're trying to create a win-win. You're trying to understand the motivation factors of the seller. And I think it starts with a conversation. Like, hey, would the seller be open to that? Well, they're not really open to it. They don't really understand it. OK, well, now you have another roadblock to get through. And so every deal is different. But in order to grow when you lack capital, you have to be creative. And you have to either leverage seller financing, get really good at approaching sellers with the idea of it, and then being really good at explaining why it benefits them as well and not just you.

6:43And then it's so funny, Henry. Once you get a track record of success and you have a few deals under your belt, like There's a lot of people that have money that is in the market making 6%, 7%. And if you can get a down payment for a place and tell them that you'll just pay them 11 % on their money until you pay it back or for two years or for three years to get into a deal, which I've done too, it benefits them, it benefits you, and it's just another tool in the belt.

7:12Brandon Turner:Your goal as an investor is to educate yourself, understand what are all of the ways that I could finance a deal so that when a deal comes across your desk and a seller is in a certain type of situation, you can go, ah, that's this type of loan. And I can underwrite it this way because it gives the seller what they need. It helps me get the deal done. And it helps solve the problem for me, which is not having to spend a ton of my own capital. It's a tool in the tool, but I love that analogy. All right, Mr. Phillip. I love the last name, by the way, Mr. Phillip Henry. Thank you. I want to learn more about how you continue to grow and scale, but I want to do that right after we take a break.

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11:49Brandon Turner:All right, we are back on the BiggerPockets podcast. I am with investor Philip Henry, who has a wealth of experience, done some creative finance deals, and we're here chatting about those. Mr. Phillip. Now, you mentioned that you bought a duplex house hack. Then you did a fourplex house hack. Then you did 11 units. And the 11 units was mostly all owner finance, correct? Yeah. The entire down payment, the 20 % I required for a down payment, the seller carried that. So what happened after that? Well, I was a full-time traveling engineer. So I'm on the road, But I made like a kind of a small little tire.

12:27I said, I got to get at least one multifamily a year. So I just kept adding one a year, one a year, one a year. So four unit, four unit, four unit. And most of it was that until I had about 40, maybe 46 units or so. But what I found, like, you know, when I was at that stage, it wasn't at critical mass. I still had my six-figure engineering, but I'm traveling all the time, staying at Marriott's, doing that. and then I have 46 units at home. So my wife's kind of raising kids and dealing with these calls. And it really, it started to put like some major, major stress on the relationship. It was just a really, really difficult time.

13:07I don't have entrepreneurs, parents. I got a work ethic from my dad. I got compassion from my mom, but they did not. They are so conservative. They were wondering if I was a crazy, absolute lunatic and wasting my money and time, you know, and here, and I'm in a different place today because of those things.

13:26Brandon Turner:It took my father probably four or five years of me doing real estate before he stopped asking me how my 401k was doing. That's right. I got rid of that thing so long ago, dad. I'm good. I'm fine. That makes 8%. My real estate makes 25 or 30%. No, no, thanks. Yeah. I like this concept of buying one a year because it seems manageable. That sounds attractive to a lot of new investors. They know that's not scary. I could buy one a year. Cool. Now let's talk about what it actually took to buy one a year. So you were buying one multifamily a year. Were you buying them all on owner financing or was this like traditional financing?

14:07Every deal I go in, I propose seller financing and 90 % of the time I was able to pull that off. Okay. And so that, that allowed me to do that. And, and then just really like MLS, like things that have been sitting for a while. Like I was, I was big on because, you know, I wanted to find a motivated seller. Usually those are tired landlords or whatever. So I would go in and negotiate that. And, and then I would go into each unit. So I, one unit would vacate. I would go in, redo the unit, get someone else in there, increase rents, change the NOI, increase the value and then take, then I would have equity.

14:41Then I would just start to use equity for the next acquisition, next acquisition. So either equity or seller financing.

14:47Brandon Turner:Love it. So almost like a little cross-collateralization kind of style you were doing there. Exactly. All right. So you're doing some of the work, you're getting these things up to speed, because obviously the way we get good deals is we buy problems. And those problems, a lot of times are the property needs some, let's call it love. Next is, you're obviously keeping these things as rentals. So who's managing these things? So I, when I, because I was a chemical engineer and I'm, I'm traveling all over, I didn't want to create another job. You know, I didn't want to have another job for myself.

15:15I mean, the whole thing about having a financial freedom is the freedom part. You know what I mean? It's one thing to have money coming in, but if you don't have, if you don't have the ability to do what you want, when you want to do it with who the P the people that you want to do with. So, so yeah, no, I hired, I had a couple, couple you know, full-time folks and and they take all the calls. They schedule all the maintenance, do all the maintenance. And I still do the leasing and advertising.

15:42Brandon Turner:So you do the fun part. You get it looking pretty. And then you get to tell people how awesome it is and get it filled. And then you're... I get to shake your hand, see who's going to be in my buildings. I like to keep my hands on that part. While you were in the stretch of one property a year and you were doing all the things that I was asking about, how much time were you spending in and on your real estate business? I would say probably 10 to 15 hours a week, 45 units at the time. 10 to 15 on top of a day job where you're traveling. On top of a day job. Yeah. And that's the hardest part. When you have these units, right?

16:19Yes, they're kicking off cash, but you're re-injecting a lot of that cash to bring them up to snuff, right? And so your wife's like, okay, you're gone all the time. The account's not really growing. And in my head, I know I'm getting equity. I know I'm building this future, but you don't see anything. And that's what's that's the hardest part to be in. It's like I'm doing all this work. That was a tough place to be.

16:42Brandon Turner:Look, I appreciate the honesty and the transparency here, because this is the reality for almost every real estate investor. At some point, you start to realize in the beginning parts of your journey that I am not reaping the fruits of the amount of labor that I feel like I'm putting in. You got it. People say real estate is a long term game. Right. And we hear that and we understand it. We go, yeah, you start now and then in the future you're wealthy. Like that makes sense. But no one talks about what that feels like when you're actually in it. It's a long term game. What people mean when they say it's a long term game, what they're saying is the financial benefit to what you're doing doesn't really hit you until a while in the future.

17:30Brandon Turner:And if you want that to happen, you've got to remain capital heavy enough to stay afloat in the meantime. And yes, you're buying assets that produce cash flow. And yes, you're getting cash flow from every single unit. And then you look at your bank account and you're like, where the heck is that cash flow? And that's because I get in trouble for saying this, but I stand on my business, cash flow is a myth. It's a myth. You absolutely shoot for it. You underwrite for it. You don't buy a deal unless it's going to produce it. But cash flow is hard to chase because yes, your property is producing two,$300 a month in net cash flow.

18:12Brandon Turner:But if you've got an HVAC go out in year one, that's$8 ,000. You've only made$2 ,200 in cash flow and you've now spent$8 ,000 on an HVAC unit. And so if you're trying to live off that$200 a month of that property, and you put a new HVAC in it, you can't do it. The money's not real. It's real in the future. But on a day to day basis, it is so hard to predict living off your cash flow. And that's what makes this business so hard is because in the first five years, you feel a whole lot of that. And you don't feel a whole lot of your bank account growing. But then once you get past five, you start to get to 10 and 15 years, things start to look a little different in that bank account.

18:55Brandon Turner:They sure do. And it's so crazy because I almost feel like the universe is saying, do you want this or not? Because there are dark places in there when there's no money in the account and the HVAC unit goes and you're like, do I have to put this on the card again? I don't know if it's going to be able to handle it. Your wife's like, what's going on? Sell it all, get out of this business. This is a stupid idea. And then that's when faith comes in. Because if you can get through that pain, what I can tell you is the other side is a beautiful place. It's so amazing. And I know I'm preaching here, but man, you're speaking my language.

19:35Brandon Turner:Look, folks, there's a lot of ways to invest in this country. There's the stock market and there's crypto and there's futures and there's all these things you can invest in. Real estate is the only get rich for sure. If you buy assets and you don't sell them, either because you want to or you're forced to because you couldn't remain capital heavy enough in the hard times, you will become wealthy. The goal is you gotta stay in the game. How do you stay in the game? You buy good deals, you underwrite correctly, and you make sure you got some capital in the bank account to cover you when things go hard because they will get hard, but it's the only get rich for sure.

20:15Brandon Turner:But you've got to maintain. And I like the honest and open conversation about those moments. I've seen people in the past six to 12 months posting, multiple people posting on social media about, I used to have a real estate portfolio. I had 40 doors, 50 doors, 20 doors, and I wasn't making any money. But when you dive into their story, they were only three to seven years in the business. They hadn't hit the money part yet. That's why I know you weren't making any money or didn't feel like it because it takes time to get there. But if you stay, if you can stay, I promise you the wealth comes. And that's a pretty cool guarantee.

20:56Brandon Turner:It sure is. I will say. And what's so cool about it is that as you're going through the journey and as you're going through all these challenges, you get better at cash flow management. You get better at identifying challenges when you're underwriting or looking at a deal. So then when you have an opportunity for a big life-changing acquisition, you capitalize on it and you only need one. Well, Philip, it's not a surprise that your last name is Henry, because you could be a podcast host. That is a great transition to what I wanted to ask you next was about the big deal that you did shortly after this one that we were talking about.

21:34Brandon Turner:But I want to dive into those numbers right after the break. I just booked a trip to the coast and I cannot stop thinking about it. Waking up early, walking somewhere I've never been, finding a little cafe with no plan except to see what the day brings. A few days to explore, try new restaurants, smell the salt and citrus in the air, and remember why we left to travel in the first place. That feeling of being somewhere completely new, that's what keeps me chasing the next trip. But here's what makes it even better. While I'm away, my place doesn't have to just sit there. I can list my space on Airbnb and bring in a little extra cash while I'm off exploring.