We Achieved Financial Freedom in 5 Years with Rentals (Doing These 5 Things)

0:00These investors reached financial freedom in less than five years of real estate investing. Today, they're sharing the five most important lessons they've learned along the way. Grace Gudenkauf and Amelia McGee started investing less than a decade ago. By 2021, they both left stable jobs to go all in on real estate. In the early years, it felt like the cash would never roll in. They were grinding, grabbing any deal they could get, wondering if they'd made the right choice by leaving their jobs. Then the shift happened. By year three, they started seeing real results, real cashflow. They could start being selective about what properties they bought and which partners they worked with.

0:41Now, five years in, they both have stable portfolios and financial freedom. They're optimizing to achieve the simple, stress-free real estate businesses they envisioned from the beginning. With these five lessons, you can follow the same path and soon have your own life-changing passive income streams.

1:03Hello again, friends. I'm Dave Meyer. He's Henry Washington. Our guests today on the show are Grace Guttenkopf and Amelia McGee. You may know them as the founders of the Wire community. They've spoken at BP Con and wrote the BiggerPockets book, The Self-Managing Landlord. Grace and Amelia have each accomplished so much in this industry that it's hard to believe they've only been investing in real estate for about five years. But it's true, they both started separately right around 2019. And we wanted to have them back on today because I think their journeys have been very typical of what most investors experience.

1:42At the beginning, it's a grind. There are strategic pivots. And then if you hang on long enough, you achieve financial freedom. Grace and Amelia have learned a lot of lessons even during their relatively short investing career. And today they're sharing the five most important lessons that will help you get to that financial freedom even faster. So let's bring them on. Grace and Amelia, welcome back to the show. We're excited to have you here. Thank you. Thank you. So we're going to get into these five most important lessons you've learned from five years of investing, but I actually want to start at the end so people can hear what's on the other side of all the hard work that you've done.

2:23So maybe each of you can just summarize your investing careers and where your portfolios stand today. Amelia, let's start with you. Absolutely. So I've been investing since 2019, and I would say I'm your self-proclaimed bestie girl, big sister, real estate investor here to share the lessons we learned over the last five, six, seven years. I invest in Des Moines, Iowa, and I currently have a portfolio of around 40 doors. I've dabbled in a little bit of everything long-term midterm and short-term rentals grace and I are also the co-authors of the bigger pockets book the self-managing landlord so if you haven't grabbed that yet definitely make sure you do that but I invest in real estate as a means to an end as a way to live a true life of freedom and I think that's truly possible my goal is to have as few doors as possible and make as much money as possible.

3:19So I can't wait to share all the lessons we've learned as your big sister in real estate. Fewest doors as possible. Most money as possible. I can get on board with that. All right, Grace, what is your portfolio? Maybe give us a little background as well. I'm also an Iowa investor. I'm in Eastern Iowa. Everything I own is in a 15 minute radius. I have about 25 doors, just like Amelia. Tried a little bit of everything and I've landed on new construction lately as being the key to all of my problems. Really looking for low maintenance, easy assets that make sure that I don't have to be anxious looking at my phone and things can just be taken care of.

3:57And I can be really proud of my units while doing the things that I love in life, but also been investing for five, six years. And I primarily do right now new construction in midterm and longterm. All right. Well, now that you all have been doing this for a couple of years. We want to hear your top five lessons for your first five years in real estate investing. Grace, lead us off. What's lesson number one? Lesson number one is that systems matter more than you think and should be implemented right away sooner than you think. And here's a few examples of why. Number one, you have like the scrappy investor like Amelia and I who got started, learned how to buy really quickly and quickly built a portfolio.

4:39And it wasn't until things started to get really crazy and maybe slipped through the cracks that we realized that systems mattered. And we do talk a lot about what systems specifically we think you should have in the self-managing landlord. But on the other hand, there's also the investor who maybe only has one rental. You get a tenant, you put the tenant in, they're amazing. They stay there for 10 years. And then when they leave, you have no clue how to get another tenant because you didn't write anything down. You don't have any SOPs and you don't have any systems. I learned this lesson pretty early on.

5:15I probably didn't implement my learnings from this lesson as early as I should have. But I still to this day remember my first few rentals. I would like I didn't care how people paid me rent. I was so blown away that people actually wanted to pay me rent. And then when I got to like five doors and I realized I was running around at the first of every month between the fifth of every month to multiple houses and going to the bank four times and realizing I didn't remember who paid what. It was a nightmare. And that's when I started looking at property management systems and that made my life a whole lot easier.

5:49And I was like, oh, there's got to be other systems then. Why am I doing all this so manually? But when you're new, especially when you're trying to get proof of concept, I was like, yeah, any way I can get the money, pay me the money. But systems definitely change things for me. I think the hard part for new investors is knowing what systems they need first and what makes sense in terms of a price point for them. I think that we would probably all be in agreement here that the very first system that you need is a strong property management software. Like you were saying, Henry, like running around and collecting rent every which way gets exhausting real quick.

6:26After the dopamine hit runs off of getting your first three rent checks from a tenant, you're like, oh man, this is way more work than I bargained for. So a property management software that not only is able to collect rent and e-sign leases, but also has a strong maintenance request department. I think that's really important. If your tenants are texting you, Facebook messaging you, emailing you, calling you, literally all of Instagram messaging, that is so disorganized. And honestly, it provides It's a poor experience for your tenants. And our ultimate goal is to keep tenants as happy as possible so that they stay for as long as possible.

7:05Because if we have a lot of turnovers, number one, our cash flow gets cut and significantly gets cut down. And number two, it's just draining and you're going to hit burnout. So I think number one, property management software, a lot of them these days can do a lot of different things. So you might not even need more than that for the first year or two. And actually, if you're a BiggerPockets Pro member, you can get RentReady for free. That's just part of the subscription. So that's absolutely something that you can do. And I think people wait way too long for this, as you said. I think the challenge, though, is they don't know how to even evaluate the tools because they've never done any of the processes before.

7:44So you're like, how do I know what a good property management software is if I don't even I've never even communicated with a tenant before? Are there any things that you think are like particularly important or should someone just should you just go buy one of these reputable softwares and trust that it has everything you need? Don't pay for one that is going to charge you per unit because it's going to get expensive quickly. And then, like Amelia said, e-sign, maintenance requests, communication and rent payment. As long as it has those four things, you should be pretty good. And when it comes to not even knowing what to do with the tenant, another piece of advice that goes along with this is write down what you do, even if it's just bullet points so that you can turn it into a standard operating procedure later.

8:29That's gonna be so helpful for when you go try to do something a second time. You don't have to recreate the wheel or do what I call is the sit and think, where you sit and think, hmm, what am I supposed to do next? You can just read your own notes and not even have to use your brain. Especially now. What an advantage new investors have with AI being implemented because I use ChatGPT and other AI tools to do SOPs now. And you honestly don't even have to write it down anymore. You can just talk to it and tell it the steps and tell it to create an SOP. A, that's easiest. But the biggest cheat code I found, if you're using software tools and you wanna create an SOP on how to use a software tool, ChatGPT has an agent mode now.

9:13You can say, log into my system, do this task, Write down each step and you can have it create an SOP for you. Man, you trust ChatGPT way more than me. I'm not giving it my passwords. That's crazy. Dave. Dave, it already knows your password. It knows your passwords, Dave. It has access to everything already. You're not that cool. Baby, it knows your password, your social, your blood type. You sound like a boomer right now. It already knows, Dave. No, I'm still terrified. Don't remind me. What about other systems outside of just property management? Are there other things that you recommend getting started really early with?

9:52A little bit more advanced. Monday.com as a project management software. I'm building. And I was laughing the other day because my GC messaged me and said, this project's moving faster than your Monday chart can be updated. He knows that I love my Monday chart. I want to see the budget, the timeline when everything is happening. and that is a great system to also build out SOPs and tasks. Like when you're closing on a property, when you're inheriting a tenant, when you're turning a tenant over, it can lay out all those tasks and add deadlines and who's supposed to do them. I love that advice. I think that just like the order of operations or remembering to do things is so good.

10:30Henry and I were joking the other day about how we always forget to move our utilities over when you close on a property. Yes. I use Airtable. It's very similar to monday.com, similar kind of thing. But like you could just program it to send you a text or to remind you to do these things. And it's it is so freaking helpful. I just can't imagine how much time and money I would have saved. All right. So those are two great systems that you should set up. I'm just going to throw in bookkeeping to just find someone to do your bookkeeping. It will save you so much freaking time. I was going to say that as a big sister here in real estate.

11:03My biggest piece of advice is once you get past like three properties, you should really be hiring out a professional bookkeeper. That is not the best use of your time as an investor, unless, of course, you're a bookkeeper by trade and you can do it really, really well very quickly. Otherwise, you can make more money elsewhere. I just want to say and summarize this whole conversation. It's like we're talking about systems. We're talking about these softwares that you should use. It might sound like a lot, but the basic gist here is just treat your rental property like a business. These are things that any business has to do.

11:34Set up bookkeeping, Get a good email. Figure out the software that's going to help you run your business most effectively. We call it investing. Real estate is really entrepreneurship. You're a small business. Just figure out the right tools that are going to help you run your business effectively. Amelia and Grace have given awesome advice for how you can get that set up. We do have to take a quick break, but when we come back, we're going to hear Amelia and Grace's four other lessons from their first five years of investing. Stick with us. As a real estate investor, the last thing I want to do or have time for is to play accountant, banker, and debt collector.

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15:35Welcome back to the BiggerPockets podcast. I'm here with Henry, Grace, and Amelia talking about lessons Grace and Amelia have learned from their first five years of investing. Lesson one was systems matter earlier than you think. Let's move on to lesson two. Grace, what is it? Number two is the biggest wealth builder is not cash flow, it's time. And as we hit years five and six in our portfolio, we're really starting to feel this. For example, rentals that we bought on day one that were okay with time where the debt's getting paid down, it's appreciating, of course, we're getting cash flow and tax benefits.

16:13Now on paper, those deals are looking a lot better. And investors forget that. They think that they can only get in the market with a grand slam and they're too scared to take any risk. Where if you just get in the game and get time on your side, you see so many more benefits down the road. I always get screamed at when I say this, cash flow is the least important way that my real estate pays me. I want to shoot for cash flow every time, but it is not the only metric I'm using to evaluate whether I'll buy a deal or not. And I would buy a deal that breaks even if some of the other metrics were wholly in my favor.

16:53I'd buy a deal that breaks even, that's in a great part of town, that's appreciating massively, that's going to give me amazing tax benefits, and that I walk into$100 ,000 to$150 ,000 of equity on day one on? Yes. I think investors should be focused on cashflow because cashflow is a measure that you bought yourself a decent deal, but the cashflow itself is not what's going to make you wealthy. It's the time in the market. It's owning that asset over time, watching it appreciate it, watching that debt pay down. And then all of those benefits give you additional options, additional buying power.

17:27You can cash out refinance. You can pull a HELOC. You can let it continue to pay itself off or accelerate the payoff. There's so many more options that you get the longer you have an asset in the market. And it's that compounding that truly builds the wealth, not the$1 to$400 to$500 a month of cash flow that you're getting off that asset. And that cash out refinance, which is tax-free money because it's debt. Of course, it's debt. You got to make sure you can cover that and service that. But once you hit year five minimum, you're able to start doing cash out refinances and get more and more chunks of equity to play with.

18:04And as I've been saying, like really play chess within your portfolio once you have a basis and make moves that make the most sense for you. And when you have time on your side, it continues to give you optionality, like you said, Henry, and flexibility because you're building equity on all ends. It's a tired analogy, but it's just a snowball effect. It just starts slow and it builds and it builds and it builds on yourself. And by the time you're five years into this, 10 years into it, you just realize you have enough capital to do really the things that you want. And it becomes a different game.

18:39Like Grace said, it's just portfolio management. It's capital allocation, which to me is way more fun than stressing about whether you made$100 or$125 every single month. And it gets you to the big picture just so much faster. I do respect, though, when you're getting started, it's hard. It is hard to see that five years out. And so you just got to trust us. I don't know what else to say. It's just going to work out as long as you buy a good deal. Just give it time, and it will work out. I think the caveat we need people to understand is you do need to have cash reserves so that you can hold on to your properties.

19:18in the event they aren't hitting the numbers that you want, right? Because the only way you really lose out on this benefit is if you sell. And so some deals are going to cash flow amazing. Some deals might not cash flow as well. Even if you underwrote them to perform excellently, it sometimes doesn't work out like that. Your renovation takes longer. You don't get the rent you were expecting. Something happens in your market. You got to have the cash reserves to hold on. But if you can hold on, the benefits are great. I am in the middle of refinancing one of the first multifamilies multifamilies that I bought back in 2020.

19:50And when I tell you, I closed on this deal January 1, 2020. March COVID hit. My renovation budget went from$100 ,000 on this asset to$250 ,000 because labor and materials went through the roof during COVID. It took me two years. I was stressed out. No rents coming in. It was costing me so much money every month. And I just kept thinking, man, why did I buy this asset? And now I'm sitting here on an asset I owe$750 ,000 on that's going to appraise for 1.5 million. Like you just have to hold on. Nice, dude. We did an interview on our podcast with a gal who had one rental property, bought it in 2007.

20:26She's up 50K in equity. 2008 to 2013, she's able to hold onto it, but she's negative 50 ,000 in equity. So she's gone up, down, she's down for a long time. She still has this property today. Because like you said, Henry, she had the reserve, She had the income to basically feed that property through the low. Now she's up$60 ,000,$70 ,000 in equity. So time heals all if you set yourself up for success to be able to hold onto the asset when the market is down. The one thing I'll add to this is I completely agree. It's changed my buying strategy a little bit. I haven't bought new construction, Grace, but I've totally stopped buying really old assets or I'm trying to stop buying really old assets because of this.

21:15So have we. Because I looked it up today. The first building I bought was built in 1896.

21:24But, you know, I just I think it's really changed my perspective because like there are great deals on old houses and I've made a lot of money on old houses. But as I've matured as an investor, I'm just like, I'm only buying stuff that I want to hold on to for a really long time because I've had to sell a lot of those older houses. it's been fine. There were good deals. But now that I'm in a different, less growth-oriented stage of my career, I'm like, I'm just going to buy a place that I know, even if it gets bad, even if it loses equity, even if I have a vacancy, that this is just a great asset that I want to hold for 20 years.

21:57That's my number one buy box criteria right now, more than anything else. Yeah, Dave, that is a perfect transition into number three on our list, which is that your buy box should change with time. As you become a better investor, you should be investing in better deals. Grace and I also, we've stopped investing in old properties. We've stopped investing in monster houses, which that's what we call single family conversions that are all wonky. They're so weird. We don't want those in our portfolios anymore. We've sold some of our rentals to reinvest in properties that we really love because now that we have five, six, seven years in the market, we've been able to realize, okay, this is the type of property that I really like.

22:42This is the type of property that's going to get me to my end goal of having the smallest portfolio possible while still making great money. And Grace has taken it even a step further to where she's now just doing new construction projects. So Grace, I feel like you should share kind of what that looks like and how also a lot of women in our community that we call mid-level investors in the wire community have also kind of switched to this new construction strategy. When we get started, a lot of us are just like, can I get into a property? Anyway, doesn't matter what it is, where it's at, or the strategy.

23:17As long as I can burr it or do creative financing, I'm interested. Once you get a few years into your portfolio, you can't be in growth mode forever. You've got to start stabilizing and really looking at what works for you. For me, I realized the pain of my existence is maintenance. And so my buy box really started to change to new construction. Like I said, I fall completely backwards into it. I never set out to do that. I bought an old home, thought I could save it in an area that was incredible, couldn't save it. So I really, the only way I could get my money back out of it was to build and then refinance.

23:56And so I did. And now I'm on to new build number five and six and seven. but I really had to think about like, okay, what makes me annoyed during the day or stresses me out? And it was realizing it's coordinating maintenance because so much decision-making. Are you going to keep it? Are you going to replace it? Are you going to troubleshoot? Are you going to tell them it's not an issue that you cover and that it's just cosmetic? There's just so much to coordinate and make decisions on there that I wanted things that just didn't involve it. And for me, new construction, when it presented itself as an opportunity, made sense.