Replacing His Income with Rentals (in 3 Years!) by “Recycling” Money

0:00This investor used one basic real estate strategy to scale his portfolio of cash flowing rentals up to 16 units in only three years. He did it by dialing into his local market to find the best available deals, then repeating a tried and true strategy over and over again. Now he's transitioned his career into full time real estate investing. He's generating six figures of annual revenue and he's building a stable portfolio of rental properties that he can retire off. and he's doing it all at the same time.

0:36Hey, what's up, everyone? I'm Dave Meyer. I'm the head of real estate investing here at BiggerPockets, and I've been investing in rental properties for 15 years. Today on the show, we have an investor story with Ricardo Adames from Orlando, Florida. Ricardo, like a lot of people we hear on the show, was unsatisfied with his corporate career path and he decided to try investing in real estate. He dove in with the BRRRR method and was able to use his modest savings to acquire not just one or two rental properties, but scale all the way up to 11 properties in three years by repeatedly recycling the same money.

1:12So if you've been hearing that the BRRRR method is dead, just listen to Ricardo. He only started investing in 2022, but has found multiple great deals every year he's been investing right in his own backyard. We're going to have a great time talking to Ricardo, but before we get into the show, I wanted to let everyone know that Henry Washington, my friend and often co-host on the show, we're going on a road trip. We are going to be driving around the Midwest and looking for on-market deals. We're going to be talking to investors, meeting with agents, going to meetups. It's going to be super fun.

1:48We're calling it the Cashflow Roadshow, and it's happening right now in the next couple of days, July 14th to 18th across the Midwest. We're basically driving to markets in three different states. We're going to go to Milwaukee and the surrounding area. Then we're going to Chicago. We're going to Indianapolis and we might even buy a deal or two of our own on the way. So look forward to the great content that will be coming out on the BiggerPocket social media channels. Best part of all of this is if you live in one of these areas, Chicago or Indianapolis. We are doing two free meetups, one in Chicago on July 15th.

2:21The other one is in Indianapolis on the 16th. We're going to be there, Henry and I, giving presentations, talking about local market conditions. It's going to be a great networking opportunity. And we have a couple fun surprises planned as well. So if you live in one of those markets, you want to hang out, go to pickerpockets.com slash roadshow to learn more. Again, these events are free, but you do need to RSVP because they're going to sell out. So make sure to go lock that in right now if you're interested in coming. All right, let's bring on Ricardo. Ricardo, welcome to the BiggerPockets podcast.

2:53Thanks for being here. Hey, Dave. Thanks for having me. Yeah, I'm excited to talk to you. It sounds like you have a really cool real estate story. So give us a little background. How did you first get started in the world of real estate investing? Yeah, sure. So first of all, I'm from Orlando, Florida. So I've done all my business down here and it's been great to me so far. I started when I was 23 years old. I bought a property here in Daytona Beach, Florida. It was a burr. And from there, I kept it going with the rentals. So I currently have 11 properties with 16 units. So I've done that in a little over three years.

3:29This year, a little more flip heavy, just to build up some cash flow. I'm on track for about 24 flips. That's been the model for this year, just to make a little more cash on the flip side rather than relying just on a couple hundred per unit. Okay, cool. Well, it sounds like you've done a lot in just three years. So we'll dive into how you found so much success, especially during what has been a higher interest rate era. I'm eager to talk to you about what's going on in Florida. But you said you started at 23. It's a young age, similar to when I got started. How'd you pull that off? And why? Why did you choose real estate?

4:03Yeah, I graduated with a degree in finance. So I was basically behind the computer during COVID as well, working from home, just trading stocks. And I realized it's probably not the lifestyle I want for the next 30, 40 years. So I realized real estate offered a pathway, not just into passive income, but also into a way of me creating my own schedule, being in control of my time and building my own business that I could be in control of. So saved up some money, had good credit, and I took a risk. After studying bigger pockets, studying the Burr method, saw which property can fit that motto. So we hear this a lot on the show that a lot of people, you know, they just something wasn't right about their original career and that real estate offers something else.

4:48Like, what was it about the lifestyle you said of that traditional career that just wasn't meshing with your ambitions, your goal, the lifestyle that you want? Yeah, I think I've always been someone that's, I'd like to be in control of what I do and of my income. My first job was at a car wash, actually. So I knew I could only make so much there. It was an hourly wage and I could work harder than everyone else, work harder than all my coworkers, my colleagues, and I would still make the same pay. So real estate offered a way to be in control of my income, in control of my time. I knew as long as I studied and I was prepared at that age, I could take a risk because what do I have to lose?

5:25And I think that's a mentality that even if you're young or older, If you have that mentality, it sets you up for success. It's funny. Most people who come on the show, talk about their first deal, don't frame it in terms of taking a risk. But of course, every investment is a risk. So how did you evaluate the risk and get yourself to a position where you at least understood the risks so you could try and mitigate them? So the Burr book was huge for me. Watching Bigger Pockets, watching as many YouTube videos as I can. so much goes into preparation before even buying your first deal or even buying your 100th deal.

6:03It's a lot of what you do behind the scenes, I feel. So as long as you're prepared, now you can take the jump. So for me, it was looking at, okay, which property can I buy under market value? And by buying under market value as a fixer upper, I was already ahead of the game because if it didn't work out on the rehab, I already bought it at a good price. That's a perfect example of how to mitigate risk, especially on your first deal, right? If you buy at market value, sure, things can still go well. I've done it before. It's gone well. But if you, especially for your first deal in this kind of market, if you are trying to figure out a way to mitigate risk, this is a perfect example.

6:39But I also think, Ricardo, you deserve some credit because a lot of people prepare but get stuck, right? They see the risks. They see the upside, of course. But they're like, oh, man, so many things could go wrong because I feel like that's like this critical juncture where some people tend to overanalyze or overeducate before actually jumping in and acting. So how did that go for you? And how did you get yourself to a position to pull the trigger? Yeah, I agree. There's an endless amount of books. Same thing with YouTube. I mean, there's an endless amount of YouTube videos out there. So yeah, it's an analysis paralysis, like you're saying.

7:12It's all about taking the jump. It's not going to be perfect, probably your first time, but you're just going to get better from there. So tell us about this first deal. What was the profile of the deal? You sound like you bought it under market value, but what else characterizes this deal? Yeah, well, it was a cosmetic rehab. I didn't want to get too crazy on the first one with roofing, electrical plumbing, none of that. So I kept it simple. That was something else that, again, mitigating risk, keep it cosmetic. So I bought it for about$150 ,000, put$35 ,000 into it, which includes your flooring, paint, kitchen, bathrooms for a three bedroom, two bath house, you know, at the time, three years ago, you can get it done.

7:48And then appraised for about 240. So trying to follow that burr method. You did bathrooms and kitchens, all that for 35 grand. That's pretty good. Oh, yeah. Yeah. You know, I think the contractor, he needed work. After that, he started raising his prices. So yeah, James Daynard, who's on the show, deals with a lot of contractors all the time. He always talks about how you have to have a lot of contractors so that you find the people at the right time. Like if they're in between projects or they're hungry for work, you'll get a good deal. But when things are going well for them, no fault of their own, they can charge more because they're in more demand.

8:18And so you need to kind of balance these contractors, which is a really important lesson. So how do you find this contractor? Because it sounds like it went pretty well. That's a hard thing to do on your first one. How did you find and manage this person? Yeah, believe it or not, Facebook. Facebook was a huge resource for me and it still is. I actually found the house as well off of Facebook. So it was a wholesaler who posted it on Facebook Marketplace, found a couple contractors through Facebook Marketplace. And one thing I always advise is get multiple quotes, whether it's for your roof or your AC, get two to three quotes, you'll have three different prices, and you might have someone that doesn't show up.

8:53Yeah. So I found him, he gave me a good pricing. He was there at 7am every day. And when you don't have to call someone to see where you're at, that's the type of person you want to work with and have on your team. Okay. And how long did the whole rehab take? Yeah, so the rehab took about 30 days, which that's what I aim for on a cosmetic rehab. And I still stick to that to this day. From there, it took me another 30 days to find a tenant and then another 30 days to complete the cash out refinance. So if you do a BRRRR within 90 days, that's best case scenario. And it worked out for there because at that time, rentals were in very high demand.

9:29And this was 2022, you said. So it sounds like you got 100 % of your money out. Is that about right? That's right. Yep. I believe I left about 5 ,000 in. But again, for the first deal, I wasn't trying to be perfect. You want to be as close as perfect as you can, but I hit my goal of doing a cash out refinance and being able to pull the majority of the funds out to keep it going. Seems like a home run first deal because you learn something, you build contacts, you got a huge financial return. So there's not much more you could do on your first deal. It's incredible. Were you addicted at that point once you did this and pulled this off in 90 days?

10:05Oh, yeah. At that point, I was like, okay, I'm going to do this again and again and again. And how many more can I take on at once? The first year kept it simple, just one at a time. But yeah, once you see it work once, you start building confidence in yourself and it's time to do it again. When you did this first deal, I assume you were still working full time? I was. However, as soon as I closed that refinance and I realized how much I could make on one deal, I decided to quit. And I decided to go all in real estate. Nice. Because I felt if I kept my nine to five, I wasn't fully committed. I was almost doing real estate part time.

10:38So I quit to go all in. And again, that's taking another jump, another risk. What went into that decision? Because I think both paths are perfectly viable. You could stay at a W-2, do it part time. There are pros and cons. Going into it full time, pros and cons. So was it just, you know, you saw this work and you wanted to do it and felt like you could make more money here? Or did you think at all about sort of sticking with the job longer term? Yeah, I mean, I think everyone's chasing more money, right? But aside from that, it's also the lifestyle, like you said. So, you know, I could have kept the nine to five and then done real estate afterwards.

11:11But let's be realistic. Most people after a nine to five, they're tired. You know, it's tiring to work a full time job and then come home and try to run a business. It's hard. Sure. You know, it's very hard. So at that point, you know, I made the decision. Yeah, I'll leave the nine to five. I have my savings to keep me floating as I make these burrs work. And as I get into a flip just to build some more cashflow. But at some point you should decide, okay, let me take the leap. If you really want to go all in and build a huge real estate business, if you want to do it part time, absolutely. It could work well keeping a W2.

11:43Well, congrats on figuring that out so quickly. Super impressive. I want to talk to you more about how you scaled up because getting that first deal, it is addicting, but establishing scale and doing this over and over again, that's a whole other beast. We're going to get into that right after this quick break. We'll be right back. If you're in real estate like me, you don't want to lose deals juggling multiple tools. That's where Resimply comes in, a true all-in-one CRM designed for real estate investors like us. With Resimply, you can connect with motivated sellers through calls, texts, emails, or direct mail.

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15:51Welcome back to the BiggerPockets podcast. I'm here with Ricardo Adames. We are talking about how he really did an amazing job on your first burr, got almost all of his equity out of it, did it in under 90 days, found a great contractor. Seems like the stars sort of align for that. Not just that it's luck. You obviously worked hard for that, but it sounds like you really did a great job. How available were more deals? Because you said you quit your job. Did you, before you quit your job know that there was like enough deal flow that you could do this at a higher cadence? Yeah. I was actually getting my deals or looking for deals, a combination on MLS and through wholesalers.

16:30And I was getting a lot of deals starting to get thrown my way as I was reaching out to people in my market. And I started to realize, okay, the deals are here now. Now I just need to manage them. Just need to make sure the funds are there because I was using hard money lending to get through the rehabs and pulling rehab draws. So that's another time management thing, a cash management thing that if you're not good at, you could burn through your cash pretty quickly. I would imagine at this point, if you're pretty new to this, you've done one successful one, but now you have time. The temptation is to just sort of go and do as many deals as you want.

17:05But I imagine you have some limitations on capital for down payments and kind of stuff. And there's a limitation on your time. So how did you strategically think about scaling up from that first deal? Starting out, I was putting 20 % down with the hard money lender, which that's pretty normal. And you have to be careful not to, okay, let me try to do two or three at once now, just one at a time, because one at a time will still get you there. So it's almost like taking a slower route, but it's going to be consistent. If you get into too many deals at once and you start going over on budgets and you're running out of funds to pay your contractors, pay for materials, you might get stuck on one now.

17:42Now you have to sell the property as is. That's setting yourself up for a loss. So I did as best as I can to stick to one at a time my first year until I realized, okay, the capital is building up. And I realized I was not going to scale to more than one bar at a time unless I started bringing in the flips because that was going to grow my bank account to have more capital. Got it. Because otherwise you're just, you're recycling it. And I mean, if you're timing it really well, you could do four of these a year, right? Because you're talking about a 90 day situation. So let me ask you, if you did it just at four times a year with the example of that first deal, would that have replaced your salary from your previous career?

18:22I think it would have, in cashflow alone, it would have taken about four or five years. So it was going to take time. Then you decided to start flipping. at what point did you do a couple more burrs or was it kind of right away you had this realization yeah i had three burrs already done um that was now towards the end of the year i realized okay not gonna live off the burrs right away probably making at that point about a thousand dollars a month you know you'll aim to have 300 something dollars uh per door and i was running low on now my living expense uh funds that i had saved up so at that point it's like okay let me take a shot at a flip.

18:57It's only going to help me build up my bank account to do more BRRRS at once. And it's also going to replenish my savings. And at that time, I was doing what I had to do to make it work. If I had to use a credit card to pay for gas and food, I did it. It's again, taking risks, but long-term just having that mindset, it's going to pay off. And how did you think about resource allocation? I think this is one of the hardest things when you're scaling up is like, you have this finite amount of money and you want to do the BRRRS because that's sort of setting you up long-term. You want to do the flips because you need more money to do more BRRRS.

19:30So you have this kind of nest egg. How did you think about dividing that between ongoing BRRRS and trying to do flips to try and grow the nest egg and sort of achieve that, hopefully exponential scale at some point? If you do four BRRRS a year, let's say, over five years, that's 20 properties. I mean, your equity is going to be at a good number right there after having 20 properties with 25 % in equity minimum. That's making you wealthy over the long term, but it's not going to allow you to replace your income right away. So that's when getting into the flips made sense. And it made sense to help me scale because it's going to build up the capital that I have available.

20:09I think this is a really important lesson for everyone listening. There are no right or wrong answers in real estate. But I think for most people, when you're trying to scale up your portfolio, you have these sort of conflicts where you want to build long term wealth. That's what most of us are in this industry for. Right. You want to replace your income. You want the stability that comes with being a property owner. But it takes a while for cash flow to get you rich. Right. Like it's going to take a while, even if you're super aggressive with it, it could still take a while. And so most people need to find a way to generate what I would call active income.

20:47And that can come in either the form of a W-2 job or 1099 job or through something like flipping. And personally, I'm actually agnostic to it. I think whatever works for you that's going to give you more money to put into those long-term rentals long-term is probably the right way for you. I've chosen to do W-2 because I'm not a good flipper. I've never done it. So it sounds like Ricardo, you're a good flipper and you were able to really start to generate a lot of income there. But I encourage everyone to sort of just think about this for themselves. If your goal is financial freedom, I know it doesn't sound like working a job or flipping houses is financial freedom, but you need the capital.

21:29You need something to invest. Even if you do the BRRRR as perfectly well as Ricardo does, you got to keep some equity in these deals because even when you're refinancing them, usually you have to put 20 or 25 % equity. you have to keep in them. And so how do you build that capital? How do you expand your equity and put it into more rentals? That's something everyone has to answer for themselves. But I think this is a really good example of how if you want to be full time in real estate, a great way to do it. So Ricardo, tell us just a little bit about managing this, because how many projects, you know, once you started flipping, how many were you doing at a time?

22:02So it grew from about two to three at a time. So now I'm currently have eight at once. So That's a combination of on market, under construction or pending to sell. So this is where scaling comes in and knowing how to manage it all and create a good team around you. Well, you mentioned a team and I'm sure you have good agents and lenders and everyone, but is it just you basically managing and building your own individual portfolio? Well, I'm the sole owner. Yes. So under me, I'll have, I currently have a project manager who is in complete charge of the construction. I think that is probably the most important hire you can make when you're looking to scale.

22:39It's a lot. You're taking phone calls from Home Depot. You're looking for a roofer, an AC contractor, landscapers. And when you have multiple projects, they can't all be everywhere at once. So I recommend to anyone that's looking to scale, that's probably going to be your most important hire. After that, a transaction coordinator is great. Help you take care of any paperwork you have going on. Almost like an assistant to help keep you organized. And from the start, I've had the same hard money lender. We've built an amazing relationship where I can send him a deal now and within the hour, he'll have me approved or tell me, you know, probably overpaying a bit.

23:15So I think consistency with who you work with is huge, developing relationships. Because when you know you have to repair a roof or you have to repair a water heater and you know who to call right away, it makes your life 10 times easier. Oh my God. The anxiety level just goes down so much once you know, when you have like, I got a garage door guy. I got an AC guy, something like that. It really helps a lot just for your mental state, not only for the returns that you generate on your portfolio. Out of curiosity though, is your project manager full-time working for you? Oh yeah. At this point, yes.