From Starting Over at 30 to 17 Rentals (and Financial Freedom) 5 Years Later

0:00Today, we'll hear how one investor finds single-family homes and duplexes for$200 ,000 or less that can gross more than$30 ,000 per year in a small Midwest market. She now has 17 properties and is right on pace to retire from a demanding W-2 job a full decade before traditional retirement age. And that's even after an extremely challenging divorce forced her to liquidate almost all of her assets and restart her investing from scratch.

0:34Hey, everyone. I'm Dave Meyer, a real estate analyst and also a rental property investor myself for the last 15 years. Today on the show, we have Sarah King, who's an investor from Fort Wayne, Indiana, who has grown from house hacking a single property as a single mom in 2020 to an impressive portfolio of 17 deals just five years later. You may have heard Sarah on episode 698 of the show. That was about three years ago, but so much has changed since then that we wanted to bring her back on to provide an update. So today, Sarah will tell us how she had originally set an early retirement goal at the beginning of her investing career, but has already exceeded that decades before she'll turn 65.

1:19We'll hear how she pivoted part of her portfolio in recent years as prices and interest rates rose. and we'll also hear how she balances self-managing her properties even with a family and a demanding W-2 job. Let's welcome Sarah back to the show. Sarah, welcome back to the BiggerPockets podcast. It's great to have you.

1:39Sarah King:Thank you so much for having me. It's exciting to be here. Yeah, it's a great opportunity to catch up what you've been up to. And I'd like to start our conversation today around 2020 because for those of our audience who didn't listen to your previous appearance here on the BiggerPockets podcast. You did some early investing, then went through a divorce. And it sounds like you sort of had to start over. Was it from scratch, basically? It was completely from scratch. So for those of you who haven't tuned into that crazy story, so essentially my husband ended up addicted to drugs. And so when you're working through the divorce process, it's never fun.

2:15Sarah King:And then on top of that, you have someone that just isn't in the right state of mind to really negotiate division of assets and all of that stuff. And you just don't expect to be here. And you're so emotionally charged at the time. And so finally, we just said, let's liquidate everything and both start over. So we're not stuck in mediation trying to decide what to do. And so I'm like, this seems like the easiest option to just move on and find some peace. And so we sold five properties that we own together and completely liquidated everything. And then each of us got a payout from the five properties we had acquired.

2:49Sarah King:And then I started completely over at zero houses, not even a primary residence, and was living with my parents for about three months until I decided I am a 30-year-old adult I needed to buy my own place. And so I started over. Well, I'm sorry you went through that. It sounds like an incredibly challenging situation. It was incredibly hard. But nothing in real estate scares you when you've already been through the craziness it is that because I'm like, a foundation can be fixed. We can work through that. So you also get this delusional sense of nothing's ever going to be that bad. Well, I appreciate that positive attitude you have.

3:25I mean, yeah, that is true. But I can imagine that it takes a little while to gain that level of wisdom and perspective after going through something so difficult. Was there ever a point when you're going through this when you just thought, real estate was my old life, I'm going to move on and do something else? Or did you know that you wanted to reinvest back into the real estate?

3:46Sarah King:So I was very big into like Scott Trench, Mindy Jensen, like love all of their stuff. And so I knew I wanted a house hack because I'm like, I'm paying for this expensive divorce. You have all these bills. I'm a single mom. My daughter was one. And it was during COVID. I'm like, I need to make sure I still have a job. My job is travel. No one's traveling right now. What is that going to look like? And so I'm like, I'm going to house hack so I can at least live for free. And through that house hack, I did a remodel of a rent style home on a walkout basement. And I learned that I liked the real estate.

4:20Sarah King:I liked remodeling. And I got kind of addicted to doing it on my own, even though I spent way more money than I should have spent. And I kind of went all out from there and I've become pretty addicted. Now I have to step back and try to do less. It is so easy to get addicted to it. I want to circle back to something you said about house hacking because I'm a big proponent of house hacking. It's how I got started. I think a lot of people get started this way. But there's this common opposition to it where it's like, oh, I don't want to live next to my neighbors. And frankly, I did it when I was like 26.

4:52I was dating my wife at the time but didn't have a very complicated life. It was like pretty easy for me to do that. Meanwhile, you did it following a divorce with a one-year-old daughter. Yes. Did you ever have concerns about raising your daughter next to your tenants, like that lifestyle element of it?

5:09Sarah King:I mean, people live in apartments all the time and it's fine. Thank you. I totally agree. And I'm like, what's the difference? Like, I get to choose who's living next to me versus the landlord choosing who's on your floor. Like, you actually get a choice and a say in the matter. And I'm like, if I'm like not tenant screening people and allowing a serial killer in my basement without running a credit check or a background check, then I'm an idiot. it. That'd be scary. So let's let's not do that. Let's check it out. And I'm like, I had like two school teachers. My first tenants are tenants that rented from one of my former homes that I had to sell.

5:42Sarah King:And they moved with me into my side by side duplex because I'm like, we have to sell the house you're living in. This sucks. And they were my first tenants in the basement of my house. And so, you know, they knew what they were signing up for. I'm like, full disclosure, I live upstairs, just letting you know I have a one-year-old and a puppy because I'm an insane person. They're probably going to be running back and forth. And so they could tell at a certain time of night the puppy would get like zoomies and run. No matter how much soundproofing you do, it's never perfect. So. And you are ambitious taking on all of this at one point.

6:15I am very impressed, but I, I, I am biased, but I, I think this opposition to house hacking because you're living next to your tenant is so overblown, at least in my personal experience, living next to tenants. And I had a multi-unit. It wasn't just one, you know, multiple. And like, it's fine.

6:30Sarah King:In some subdivisions, I had like more steps to see my tenants than people do in like housing additions that are really high density. Like we had different patios, different sides of the houses. Like they went out the backside, I went out the front and we had our own yards, parking spaces. That's a really good point too. Like if you have an opposition to this, you can also just target a property that has a layout that is suitable for you. Like, You see these side-by-side duplexes with a fence that splits the yard where they have separate driveways or different parking areas. I started in these cut-up old Victorians where there's a shared entrance and then they split off.

7:06If you don't want to do that, fine. Go find a purpose-built duplex and go invest in something like that. So what was the plan? So you bought it. You renovated it yourself. Did you already have an idea? You had five deals. So were you already thinking about scaling while you were doing that first one? Definitely. I mostly needed a proof of concept because that house was the first one that I raised private money because all of my money was going towards divorce and home renovation. And so I just ran out of reserves really fast. And I had a good job at the time. I'm like, thank goodness I have that.

7:37Sarah King:And so I was thinking to the future, but I'm like, I really just need to prove that I can do a refinance and give people their money back so I can go on and do more. And I, of course, hired plumbers and electrician. I ended up getting a real drywall guy because turns out I'm not that good at it. And it looked really bad. So it ended up, I ended up having to hire out and do a lot of it and went through a few guys. So you basically were like, I'm going to buy a house hack. I'm going to renovate it and refinance it. And that way, when I refi it, I can pay back my private money lender. Exactly. And you would still own the asset, right?

8:14So it's kind of like combining a burr and a house hack at the same time. Exactly.

8:18Sarah King:And it's funny because, you know, back when Burr was this big phase, like people would all like hold the check online when they refi out of houses and be like, this is how much money I got in addition to it. And I got a check for like$500, I want to say, or$800. And like, it really happened. I left closing with a check and it's like the littlest check ever. But I'm like, it really works. And it was just that clicked and kind of the rest is history where I'm like, I want to do this again. I was hooked. I want to hear about how you scaled after buying this house hack. but we do need to take a quick break.

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12:06Welcome back to the BiggerPockets podcast. I'm here with investor Sarah King, who told us how she started over after a divorce by getting into a house hack where she did a lot of her own work. Sounds like it was a big success. So what was the plan for you, Sarah, after that first house hack? So ironically, I got this private money loan originally. So I was about to sign with this stranger from the internet. And my parents freaked out. And they're like, you're borrowing money at 12 % from a strange man on the internet that you've never met before. And now I do this all the time.

12:40Sarah King:But at the moment, they were very concerned. And so it actually pivoted where they're like, this man is trying to take advantage of you, we're going to give you a loan at 7%. Okay. And so I ended up with a really sweet deal. And I feel like I like essentially outbid the OG investor. So I had two people believing that I could figure this out. And that we were going to succeed in this plan. And so my first loan was actually at 7 % full disclosure, friends and family discount. And so once I realized that they would lend me, I think it was $186 ,000. As soon as I paid them back, I'm like, hey, I found a side by side duplex.

13:15Sarah King:Do you want to do it again? And can I reinvest this money into the next one? And so I paid all cash for that one. I refied out with a conventional loan again, paid them back. And then after that, they're like, whoa, whoa, you're moving really fast. You bought two houses in two years. We're out. We're not lending you anymore. Really? And they were very nervous. They're like, you're biting off more than you can chew. You have this day job. What are you doing? I'm curious if you have any advice for people who are trying to work with either friends or family and get them interested in participating in these types of loans.

13:49Because I think these types of partnerships, people don't talk about a lot, but are extremely common in real estate.

13:54Sarah King:I think the biggest thing, honestly, is social media. And that sounds really cheesy because everyone online will say this, but truly it just built out where people could follow your journey. And it's a lot of the private money lending when it's a relationship, they just want to know you like you develop the know, like trust on social media. And so if you're oversharing your journey, they can kind of buy into, they want to be a part of that. And so from a friends and family standpoint, I feel like it tends to be a little more emotional versus a decision. Not always. Like my mom eventually reinvested because She's like, I want the business benefits of this.

14:26Sarah King:This is pretty cool. I watched the machine working. Yeah. But other people wanted to buy into it because they like the story. And so you just have to know your audience. Yeah, that's good to know. I guess my friends and family are just business oriented people. It's great to have both. Yeah. That's cool. So when your parents pulled out after the second deal, what did you do after that? Probably the best thing that's ever happened to me because then I had to go out and actually learn how to raise money. And so the next time around, I actually was about to get the money for my divorce. So at this point, we actually had all of the money from our divorce sitting in an escrow account.

15:05And for about a year, there was a lot of discussion back and forth on how to disperse this money. And so for over a year, we couldn't access a single dollar. And it's just sitting in an escrow account, which is really depressing when you're an

15:17Sarah King:investor. Yeah, ridiculous. And so I finally am going to get this payout. And it's the end of the year. And I find this side by side duplex. again. And I'm working it up with a conventional lender to get pre-approval. And this is what I learned. This is probably the single tip if you were a W-2 person that helped me grow my unit count like crazy was you could get pre-approved and completely clear to close off of proof of funds from your IRA. You can Google it. It's not a sham. So you can use like IRAs or investment accounts. It can't be like a current company 401k, but you can use these traditional retirement accounts or a brokerage account to get proof of funds and kind of get, you can get completely to clear to close on this conventional loan.

16:03And then, you know, I'm still waiting for the money and going through the whole court process. And I know it's coming, but I was able to use that to really get through all the due diligence on the loan. Oh, interesting. I had never heard of doing And so it ended up being really easy to do that. And then I was about a week out from closing on this house and our court process got delayed by six months. And I found out I wasn't actually going to get any of the money. But were you able to close on the house still?

16:31Sarah King:Yes. So then I ended up being like, I have no money. I'm clear to close. And then I went out and found a private money lender and wired that money in. Because at that point with all the court process, I couldn't actually like pull out of my IRA. And I also like really didn't want to like it made my investing heart really sad. And so I ended up using private capital instead of my IRA account to close it. Wait, sorry, you're you're it made you sad to pull out of your IRA. Yeah, that was just like a different investing category that you wanted to maintain. Yeah, I have a whole like nerdy world of index fund investing.

17:05And I wanted to keep my real estate world and my index fund world separate. it. Honestly, I mean, you must listen to Mindy and Scott then if you do that. I mean, I do the same. I'm 100 % the same. I know there are a lot of people, real estate influencers who are like, go all in on real estate. I'm much more of a diverse... Most of my money is in real estate, but I do have other investments. So I kind of think about it as three phases. So like phase one was always like, I need to make sure I can retire comfortably at retirement age. So 67, 65. And so that is what I do with my IRAs, index funds, HSAs, like all of the Mindy and Scott world of money.

17:46Sarah King:And so all the traditional investing that I do really heavily from the day job is kind of phase one, like I'm not going to eat cat food in retirement. Yeah, I think everyone shares that goal. And so the second goal was how do you retire faster at 55? And there's a rule of 55 for the super nerds out there. And so how do I get there? And how do you bridge the years between retirement, traditional retirement age and when you retire early at 55? And so real estate is my bridge. Cool. Do you have a goal? I mean, now we're getting into the nerdy stuff. I know. We'll probably go there. It's inevitable.

18:25Yeah. Have you backed into some cash flow number or, you know, equity value number of your portfolio that you're aiming for? So this is the you keep moving the carrot farther down the road problem. So my original FIRE number was$3 million. I think if I reworked it today because I'm high maintenance, it would be$4 million. So essentially, I'm on track right now from just the stocks 401k portfolio to retirement age, so 65 with$3 million. And actually, I got there where I could retire at 55 and withdraw. So I'm on track of$3 million by 55 and just retirement, not counting real estate right now. And then I decided to double that number.

19:07And now I'm like, let's aim for 6 million because I kind of already got there, but I didn't want to stop investing in real estate.

19:12Sarah King:And so I decided because you don't know which market is going to have a fallout or what's going to happen. So I'm like, let's do 3 million in both buckets, which sounds excessive. But I'm like, I want to be good on the stock side and the real estate side. I want to get both at the age of 55 to be at 6 million so I can retire and I know I'll be OK. I like that. You're a big hedger like me. I love the hedge approach. So that's my really overly zealous hedge plan. Well, let me add, let's, I mean, this is not where I thought this conversation was going, but now I want to go down this conversation because this is fun.

19:47And I think it's super valuable to people because so many people get into real estate and they just acquire units and pursue different strategies, but don't have like a goal, which is crazy to say, but of course people have a goal like, oh, I want to retire or I want to retire early. But it lacks specificity. And if you don't have that level of detail, it's really hard to reverse engineer a portfolio if you don't know what you're trying to get to at the end. So can you tell me, like, where'd you come up with those numbers? And then maybe tell us how you use that information, knowing this goal, to sort of like steer some of your real estate investing decisions.

20:27First, I did it the traditional way with like the FIRE calculators. So Mr. Money Mustache and all the FIRE gurus and like they all have these FIRE calculators. And so I worked backwards from I would like one hundred and twenty thousand dollars a year. You work that forwards. That's about the three million number. So once you have that goal, like does that inform your buy box like what you're buying today? You know, because there's so many different options in real estate and it can be overwhelming. has creating this goal long-term and having what seems like a pretty clear vision of what you're trying to accomplish helped you narrow down your buy box, your strategies and all that?