Making $30,000/Month (Per Property) with Assisted Living Rentals

0:00This investor makes$30 ,000 per property per month with assisted living rentals. Is there really no cash flow available for real estate investors these days? Or do you just need to get more creative? Instead of making excuses during a challenging market, today's guest found a formula that tripled his monthly revenue. And now he's repeating it over and over to grow his portfolio and advance towards financial freedom.

0:31Hey, everyone, it's Dave, head of real estate investing at BiggerPockets, and I've been buying rental properties for more than 15 years. Today, I am joined on the show by an investor, James Davis from Salt Lake City, Utah. And James started his investing career with just$15 ,000 in savings and was willing to do anything, including living without a toilet for three months just to make his first deal work. Now, just six years later, he owns six properties and is on pace to gross more than$1 million in revenue this year. James has done this by adopting the increasingly popular assisted living real estate strategy.

1:11Basically, what he does is provide a needed service to people in his community. And by doing that, he can generate up to$15 ,000 in revenue from just a single bedroom in a house that would normally rent for just$2 ,000. This approach is definitely an active strategy. And so it's not going to be for everyone, but if you're willing to hustle as much as James has, you can radically transform your financial situation in just a couple of years. Keep listening and hear how he's doing it. James, welcome to the BiggerPockets podcast. Thanks for being here. Thanks for having me. So how long have you been investing or involved in real estate, James?

1:49I got my first property. It was September of 2019. So it'd be almost six years ago. Nice. Okay. And can I ask why? What brought you into the world of real estate? So I've always loved watching you guys. I've always, I really liked Graham Stephan and Meet Kevin online. So growing up in high school, I watched those channels. So I think I always wanted to be invested in real estate. It was just a question of when. And when I was 18, I actually moved out of my parents' place and I was a live-in aide at a nursing home. So what it looked like is I didn't have to pay any rent. I got to live there. I take care of this guy.

2:27He was a Vietnam War veteran and I took care of him. He paid for my food and housing and I didn't have to pay anything, which was really nice. So it was a really good setup. And my uncle reached out to me. He was a real estate agent and he was like, hey, I have this property that I think you should invest in. In my mind, I was like, oh, I don't pay any rent. I could live here for a while. I'll just save more money. I don't need to buy a property right now. And that was like July of 2019. So he was suggesting like, hey, just use your savings. You'll have a down payment. It was like a house hack situation where I'd live in the basement and I had a separate entrance and then I'd rent out the upstairs.

3:05But it would be like$15 ,000, which was like everything I had. So I decided, OK, I want to take this on. That was July, August of 2019. And it was actually a seller finance. Oh, cool. And this is my uncle setting it all up. I had no idea any of real estate contracts or anything how that worked. And I had just graduated high school. It sounds like you walked into an interesting opportunity with your uncle. So he came up with this house hack. I'm curious, which is a great way to get started, especially in 2019. I'm sure it worked out well. But did you look at other deals or were you kind of just trusting your uncle?

3:41Like this one that he's proposing to me, it's seller financing, you know, Like, this is a good deal. Yeah, I didn't look at anything else. I had complete trust in him. And looking back, I'm like, wow, I was lucky. And I'm fortunate that I had someone in my life that cared about me and didn't take advantage of me because he totally could have. Sure, yeah. But so was it like in a neighborhood you liked? Did you know where it was? Or you're just kind of like moving into a house blindly based on your uncle's recommendation? When I went to the neighborhood, of course, it wasn't the most expensive side of town, but it wasn't terrible either.

4:15We call it West Valley over here. Okay, cool. And so you find this house hack, you got to put 15 grand in. That's all of your life savings at this point. But you're moving from what was your job, right? Because living with this veteran you were living with was kind of how you're getting income. So did you have a new plan for how you were going to make your mortgage payments or were you living for free? At the time, I was making 16 bucks an hour at a call center. Oh, wow. And then you were doing DIY renovations to it at the same time? Oh, yeah. And this is at the time where I had no idea what I was doing either.

4:50And what I had done is I lived in the basement. It had that separate entrance. There was no kitchen, not even a bathroom down there. And then I just rented the upstairs right away. Okay. But how did you go to the bathroom? It was funny. I had a gym membership and I had to strategically do that. And I worked downtown at the call center. So I would go to the gym, not to work out or anything. I would just go there to take a shower and then do everything and then go to work that way. And I didn't have a toilet for three months. Oh my God. Yeah, I just, I didn't have a toilet. I didn't have a shower.

5:27And it was, that was my first goal was to try to get that. Well, I imagine that's pretty motivating for what you're doing your DIY. It's like, I got to build myself a toilet at least. And then on top of that, so I had the down payment for 15 and I knew I needed about 15 or so in work. And I ended up spending about$12 ,000 on the renovations because I did all of it on my own. And how do you pay for that? Was that just more savings or your income from your job? It was my income for my job. So every paycheck, I just threw it at Home Depot, basically, going and getting materials and doing everything.

6:04And of course, I knew how to do something. But then I had to wait until I could buy what I needed to buy, which was really tough, especially with like the mental load of the balloon payment coming due. For sure. Because my uncle was like, hey, if you don't finish it in a year, it's due. And like, And if it doesn't appraise, then you can't keep the house basically. So just so everyone understands, sometimes when you do a seller finance deal, the seller will say, hey, yeah, I'll float you for a year, but I'm not going to amortize this loan over 30 years like a bank. They're basically like, I'll give you a year to figure this out.

6:39But in a year, you owe me all your money. And that's sort of in the form of a balloon payment. And so what James was facing is that in a year, he had to figure out a way to refinance or I guess the seller could technically foreclose on you, right? Or try to take the property back. But you're also dealing with this thing where you want to go quickly to renovate so you can refinance, but you're using money from your call center job to pay for that. So how long did it actually wound up taking you before you could complete the renovation and get that refi? It took me eight months. And I think it probably would have gotten done or two and two maybe if I had the money right away.

7:19but I had to do it just paycheck by paycheck. I added a kitchen down there. I added a bathroom. I did all the plumbing, the electrical, everything. And you taught yourself all that. Yeah. There's a really good book. I think it's called like Home Improvement 123. It's something from Home Depot, actually. My uncle recommended it and I read it and it does like, it shows like all the basic stuff if you didn't want to go through YouTube. But I used YouTube a ton. And even though it was really hard, I remember being very happy at the time and just being like, I know that this will like help me in the future.

7:51I just got to get it done, put my head down and work on it. I didn't, I didn't even have a bed. I had a sleeping bag that I was sleeping on. There was no flooring. It was a concrete floor and it was just, I was the definition of house poor at the time. Good for you, man. I mean, that is an unbelievable amount of hustle to, to get it done. Uh, like you just found an incredibly creative way to get into your first deal and worked your butt off and personal sacrifice for eight full months, basically, to be able to do that. Not everyone's going to do it that way, but kudos to you, man. I mean, you took responsibility and you worked your butt off to be able to do that.

8:30And hopefully it worked out for you financially. When you were done with the renovation, like what did you have? Because you had the unit upstairs now. So like, what did the final product look like when you went to apply for the refi? I had an appraiser come in for the refinance and they appraised it the 285, which means the loan to value was 80%, I think. Nice. So my mortgage was 220, which means I didn't have PMI and I got a 375 interest rate. Wow. That must've felt good. Yeah, it did. And it was June of 2020 when I closed on the refinance. So I was able to lock in that rate for 30 years on a conventional loan instead of an FHA.

9:14And my payment ended up being$1 ,300 with the PITI. And how much rent were you getting upstairs? So during the renovations, I charged $1 ,100. But afterwards, I was able to do$1 ,300. Amazing. The rent covered my mortgage payment. So after obviously eight months of incredibly hard work and sacrifice, you were able to essentially live for free. Now, your upstairs tenant is paying your principal, your interest, your taxes, and your insurance. So pretty much your biggest costs. I'm sure there were still repairs and other costs, but given that you just did a big renovation, at least the basement unit was probably in pretty good shape.

9:52And so that's just a home run deal. It's incredible. I hope you still have that 3.85 % interest rate on that deal. Yeah, I do. And it's still doing really well. And just recently appraised for 440. Okay. Congratulations. Just want to say like, this just seems like an absolute home run deal. Congratulations on putting in the effort, the time, getting creative and figuring this out. I want to hear where this first deal has taken you and how you went from living without a toilet for three months to now running a multi-million dollar real estate business in just the span of a couple of years. But first, we got to take a quick break.

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15:07Welcome back to the BiggerPockets podcast. I'm here with investor James Davis. We heard about this amazing house hack he did in Salt Lake City back in 2019. James, after you pulled off this incredible effort of hustle and creativity, what did you do from there? Yeah. So actually, January of 2021, I left and I served, it was a mission for my church. So I left and I was living in the Detroit area for two years. So I had family that actually lived in the property and they took care of it while I was gone, while I was there in Detroit. And if anyone knows what a mission is like, you don't really have access to like technology or what's going on in the world.

15:51But when I came back two years later, I saw that real estate values had doubled in my area. So my mortgage was around 220, but yeah, it was around the$400 ,000 range that it was worth. So I came back February of 2023 and taking the advice from what I've heard from BiggerPockets and the other real estate investors, I went and I applied for a HELOC. So I got my HELOC approved for$100 ,000 June of 2023. And then this wholesaler sent me this deal September of 2023 for the single family property that needed a lot of work, but it was a sub-two deal. So the seller didn't have any equity. They bought it back in 2021, but they had two loans on it.

16:38So it was the original mortgage, plus they got a loan on their down payment. It wasn't a pre-foreclosure, but it was getting close to that. And how do you approach that? When you see a situation like this, how do you structure a deal that makes sense for you and hopefully for the family that you're taking the mortgage over for as well. For this one, what we did, we backpaid all those mortgage payments. So I made sure everything was current and then they got$5 ,000 too on top of that. Okay. So instead of having to come out of pocket, they got$5 ,000 and I paid for all the closing costs too and the wholesale fee too.

17:15So, and it's good for them because they're in this situation. If they tried to sell with an agent, they would have to fix up the property, they'd have to deal with all that. And it would be like a several month ordeal probably. And probably a 6 % commission. Absolutely. So with a sub two, they don't have to do that. And that's kind of the selling point because a lot of people don't know about it, especially the sellers. So when you're trying to talk to sellers about sub two, you have to say, Hey, this, you get equity, like you get paid to get out of this and you don't have to deal with the payment anymore.

17:48And then if I don't make the payment, you can have the place back and all the payments I've made, you can have that too. So that's how I've structured it. And I think also key is having a really good title company that's dealt with it before. And you can reach out to title companies and say, Hey, have you ever done sub two deals? Like, have you ever done seller financing? This is what I'm wanting to do. Have you guys had experience with that? And there's definitely escrow officers that have more experience than others. So having those people with experience is I think really key. For sure. Yeah.

18:19I mean, that's really good advice because with subject to right there, there are risks to both the seller and the buyer, right? Like for a buyer, there is a risk that the bank could call the note do. What are the risks to the seller? I guess maybe I should ask you. Yeah. The risk to the seller is it's still on their credit. So like the loan is still there. So if I don't make the payment, it could affect them still. So if someone pulls their credit, they still have to explain, Hey, this is a mortgage that yes, is under my name, but it's sub two and they have to prove that if they were trying to get loans in the future.

18:51So there are downsides in that way. But I think the pros outweigh the cons where they can get out of a situation that they really don't want to be in anymore. And they can get paid to be able to get out of it, which is nice because sometimes with properties that need a lot of work, you almost feel like you're taking advantage of people when you buy them. And I hate feeling that way. I hate feeling like I'm taking advantage of someone suffering. But with sub two, I feel like you're offering a solution for a really tough situation that they're in. And you're giving them a way out that's creative, that yes, there are risks, but I got their interest rate, which was three and a half percent in 2023.

19:30I think subject two is sort of a controversial thing. I think as long as you understand the risks and sort of go into it with the mentality that James has, where you are trying to genuinely help someone and create mutual benefit, as long as you understand the risk, work with professionals, as James said, like work with people who really understand this and go in it with an approach of trying to find a mutual benefit. It is a worthwhile strategy for a lot of people to consider. Make sure that you're not breaking any laws, doing anything right. But, you know, if assuming that you can do it right, like you said, you can help someone out and you can get an interest rate that's a fraction of what you would get today if you were just to go get a new mortgage.

20:10Absolutely. And with this one specifically, we had reached out to the mortgage company and said, hey, this is what we want to do. And hey, it's either you have a foreclosure or we make the payments. And they said, okay, yeah, we do need to call the loan due, but we'll delay it. So they agreed, hey, we're going to delay 18 months. If the payments are current after a year, you guys can assume the loan. Okay. That's a great way to do it. Yeah. But of course, that was with the mortgage company agreeing to it and being kind enough to delay it. But it was in their best interest, too. That's a great way to do it.

20:43And definitely appreciate you, you know, really dotting all the I's, crossing all your T's and doing this the right way. When you were talking to some of these wholesalers, were you intentionally looking for sub two or did you just kind of like come into this deal and then figured out sub two after? I was looking for seller finances, but with the interest rates being higher, it was tough to find a deal that I could cash flow with the numbers because I was wanting to buy and hold and doing the long term. And that was my idea back then was to buy the long term rental real estate. But the numbers just couldn't make sense.

21:17So I came across sub two and it kind of came to me, I guess, with that first deal as an option. Well, you've proven yourself, James, to be a very creative and hardworking guy just from the first two deals that you've told us about. I want to hear more about how you've scaled because I understand that you've really grown a massive real estate business in the last couple of years. But we do have to take one more break. We'll be right back.

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