6 Rentals in 5 Years and Fast-Tracking Financial Freedom

19:20Tony J. Robinson:I'm sure that you were like, is this actually going to work out? What did you tell yourself to get past those fears and actually make that move? You know, in hindsight, it's actually not my personality at all. I'm a very conservative, like not a risk taker person. And I try and think back to those days. And I think part of it comes down to almost like desperation, you know, like the feel the feeling of you got to get out of this position if you want to get somewhere in life. And And it's just kind of like diving in headfirst and having the faith in yourself and say, I'm not hoping for the best, but I'm going to make the best out of it.

20:01But honestly, I mean, I think back to those days and I almost pinch myself like this is so not what Dean does. And it's great that it happened because it also gave me the courage to do it again, right? Like now we're having thoughts of, you know, when is it going to be time to move back to Casey where we have that side of the family? And, you know, do we want to grow our family in L.A. or do we want to do that somewhere else? And now the thought of going somewhere else and moving and picking up and starting over again is less scary, less intimidating because we've done it before. So absolutely.

20:32I mean, based on what you said, and I said it a few minutes ago, the opportunities that I had are unique. And I recognize that. And I'm very fortunate for them. But I think that when you take a step back and you and a lot of people might have something like that they can do to try and take advantage of it. And whatever it is, if it can shake things up and give you those opportunities, go for it.

20:52Tony J. Robinson:So do you moved out right at the beginning of covid, which could have potentially been maybe like the worst time in recent human history to try and make a big life move? How quickly were you actually able to see results? Because obviously you stuck it out. How long did it take for you to feel like, OK, this is actually the right decision for us? Funny enough, it took me a really long time to see results and not to get too much in the weeds, but like just the mechanics of a sales job and commissions, which is 100 % the way that I'm compensated. I had zero. I haven't had a salary since I left the Federal Reserve in 2020.

21:26And so I didn't make a dime from home improvement until I think August of that year. So I went a good six months. And it's kind of one of those funny, coincidental stories of like, we pretty much got down to our last cent in the bank. And when I say we, I mean, I mainly mooched off of my wife's money because at the time, the way that our finances worked is when we were both working at the Federal Reserve and, you know, paying the bills from one account and saving another account. And that savings account was just about dried up when I got that first commission check from Home Improvement. So it took a good six months or so.

22:02and there were definitely scary moments of like, is this going to work? We're going to have to pull the emergency cord here in a second, but it was tight.

22:11Ashley Kehr:So now that you've made the move, what did you do with your property that you had back home? So that property, we rented it out pretty quickly. And I think that's actually one of the things that I learned from this whole process is my wife is funny because she says that I'm sort of more of like the doer and she's more of a planner. Um, but with real estate, it's almost the opposite. She's very quick to say like, this is a good property. We should get this one. Um, and what I'm trying to get at with that is that property rented pretty quickly, which my hesitation kind of being conservative, uh, the way that I am, like not a risk taker, like I mentioned a moment ago is I would have guessed it's going to take so long, so long to rent these properties.

22:54And I'm scared to get another one because maybe no one's going to want to rent this particular property. We got the worst one ever. But that one rented quickly. And again, it's like a light bulb moment. You go, huh, okay, well, surely this isn't like a fluke. And then as we started to make money in LA and doing what we were doing, then she's picked every house that we bought. And every house has rented very quickly. And so obviously that house that we owned beforehand, that was the first one we started with. And then it took us probably, I think, maybe a year or 15 months or so to get to the point that we could get the second property, which I kind of view as like our first real rental investment property.

23:36And then from there, it kind of steamrolled pretty quickly.

23:39Ashley Kehr:So during those next steps, how were you funding those next deals? So it's a really good question. That's the part that I feel like is maybe unique. And in the sense that, you know, people in the real estate community are oftentimes taught all types of different tips and tricks and, you know, OPM and house hacking and HELOCs and different things to finance deals. And the reality is that we were very lucky to be able to finance all of our deals just with cash. And the strategy that we use is we put down 25 % to lock in the best rates that we can for investment properties. And we do them all on 15-year mortgages.

24:22And that's really just the gist of it. And we have a pretty we're pretty dedicated to our strategy of sort of intentionally losing money on these properties. Right. When you put down 25 percent on a 15 year note in this in today's market, just the cash flow isn't there based on what rents go for, even in a place like Kansas City, which I know is sort of a very desirable rental area. So that's what we've done. And we lose anywhere from 200 bucks to eight or$900 per property that we own on a monthly basis.

24:57Ashley Kehr:Okay. We need to break this down as to why someone would do this, right? And I think the first thing is that people look at, you want a cashflow on property because you want the mortgage payment, you want the expenses covered, and you want to make money. But explain to us how you are actually investing. Yeah. So I think it's a different philosophy, right? And a lot of times those few hundred dollars are really crucial to stay afloat and to pay for, you know, CapEx expenses or whatever it might be. But for us, we viewed it in a way that we're fortunate that our income allows us to support those losses, to be able to swallow them.

25:41And then by having them on 15-year notes, I mean, obviously, they're going to pay off 15 years faster than a 30-year if we don't pay down anything any quicker. And in doing so, I think we're just accelerating our path to financial freedom, right? So instead of sitting back and saying, okay, I'm 30 years old today. If I buy a house today, I'll be 60 when it's paid off. That thought kind of scared me. Like, I didn't want that. And that was really just the ultimate factor in the decision of when do I want to be financially free? and I want to do it sooner rather than later. So the 15-year note was just so much more appealing when you look at it from the perspective of, I don't really want to work in sales my whole life.

26:21I don't really want to work in an office job my whole life. I want to be able to enjoy time with my family. I want to be able to travel the world. I want to do all the things that most people want to do when they invest in real estate and become entrepreneurs. And I don't want to do it when I'm old. So we're very much investing in it now from that perspective of I want to lose the money now. I want to invest the money now so that I can enjoy it more quickly later on. And I think there's something to be said, too, of maybe those deals aren't making sense today.

26:50Tony J. Robinson:But that doesn't mean anything 10 years from now, you know, as maybe rents have continued to increase and things like that. So it could be in a decade. All of those are printing money and you're only five years away from getting them paid off. So I think it is a unique approach, Dean, because to Ashley's point, most of the rookies who are listening are probably investing for cash flow today. But I think it goes back to the point that we touch on a lot, which is everyone has a different motivation for investing in real estate. And you've got to understand what yours is in order for you to make the best move for you and for your future.

27:26Tony J. Robinson:And for Dean, the idea was I can tough it out for 15 or 20 years in this job. I just don't want to tough it out for 30 or 40 years, right? So let me make a plan that works in that 15 or 20-year timeline, and then let's work that plan.

27:39Ashley Kehr:Dean, offhand, what is the total of your mortgage payments right now? So when you have those properties paid off, how much will you not be paying out anymore? I'll give you the full outlay. I mean, so right now today, our mortgage payments are about$17 ,000. Our rent payments are about$15 ,000. we lose about$2 ,000 a month on the houses. Now, I'll pause there for a second just to explain another sort of point of perspective that I have, which is our portfolio is worth about$2.5 million when you take the market value of the six properties. I think that if I came to you or any other investor and I said, would you guys pay$2K a month, a$2K a month mortgage on a$2.5 million house on a 15-year note?

28:27I think anyone would take that deal, right? And so that's my perspective. And I think that when we look 10 years from now or 15 years from now, I think if you take a standard rate of inflation and just market growth, I would hope that those rents instead of equaling 15K today might be closer to 22 or 25 ,000 10 or 15 years from now, if not more. And if those properties are paid off, then now I'm making 25K a month in rental income, right? Right. So when you take kind of those three components together of being able to take the loss today and what is the value of that and does that make sense? And then where is it going to be in 15, 20 years?

29:08That's how I look at it.

29:10Ashley Kehr:I think it is so interesting to get this perspective, because one thing that I've learned so much since starting investing is just like, wow, the equity and the appreciation in the property, that's the real wealth builder. It's not the little bit of cash flow every single month. It is, that is what is building wealth for me is all of that equity. And I do have a couple of properties that are on 15 year notes. And it's like, some of those properties, it's been, we just hit the 10 year mark. And it's like, oh my God, five years, 10 years went fast. They're gonna be completely paid off. So I think this is a really interesting perspective.

29:46Ashley Kehr:And I think a word of caution is make sure you can afford to put that money in every month. And I think one way to look at it is, you know, a lot of people will put money into their brokerage account or they'll invest money every month in different ways. And you're investing it into your properties by just paying down the mortgage faster. Yeah, I think there's something really to be said about people look at real estate and sometimes they think of it as like a quick fix or like an easy way to make an extra$300 a month. Which like if that's what you're looking to do, that's totally fine, right?

30:16There's so many different strategies to invest, whether it's real estate or any other avenue. But the thing that my wife and I really consider is we're looking at this like a business because ultimately it is a business. And I think the majority of businesses, when they start from the beginning, they take losses a lot of times. Right.

30:31Ashley Kehr:Or you're putting in a lot of your own time. Yeah. And there's there's there's tax benefits to losses. And then there's, you know, there's a timeline that we just discussed. But even when you look at it from a business of like, you know, owning six rentals is a lot of work. You know, I think that's also something that maybe goes underappreciated is there's a lot that goes into, you know, filing rental licenses and getting tenants and cleaning after and turning over and repairs. And so we're just looking at it like like a business. It's not just a quick way to make a few hundred bucks a month. It's something that we're investing in right now for the long run.

31:04Tony J. Robinson:Yeah, Dana, it really is a fresh perspective. And I think that there are a lot of folks who are listening who maybe now see another path or another reason maybe to invest in real estate that they hadn't considered before. So I love hearing that. And so I just want a 30 ,000-foot overview of the portfolio. You said six properties. Are all six of those back in Kansas City? Yeah, so they're in sort of the greater Kansas City area, I would say. None of them, funny enough, are in Kansas City, but everything from, if you're familiar with that area, you'll know these places. It's Overland Park, Fairway, Prairie Village, which are all kind of like the main suburbs around Kansas City on the south.

31:44Tony J. Robinson:And are they all traditional single-family homes, or did you guys kind of expand beyond what was your previous primary residence? Yeah, they're all single family homes. And we've learned a lot even just from testing the waters with different types of single family homes. Right. So what I mean by that is the first one was a three to about fourteen hundred square feet. That's the one that we bought for ourselves that we lived in. And then funny enough, the first house we bought after that, like our first real investment property was a three one. And I was always very hesitant on the one bathroom configuration, but my wife was very much set on.

32:15This is a good part of town. It's going to appreciate a lot. We're going to get a lot of equity in the long run. And that maybe we'll find somebody who's single or maybe a young married couple that doesn't need that second bathroom. And that's basically what happened. So we got a 3-1 at first. And then after that, the next one was a 2-1, which I also didn't love. And I told my wife, this is the last one bathroom house that I'm buying. Um, and then after that we got, um, I believe it was another three, three, two, and then we got a really big house that was, I think a five, four. Um, the numbers start to get blurry.

32:53I'm sure you guys can imagine as like of keeping track of all these things up top of your head. Um, so that the point being that we have a lot of different configurations, I am definitely hesitant and I don't regret it, but I still don't love the one bathroom homes. I think those are harder to turn over as we've discovered over time. You do really need somebody like an older person living by themselves. Really, that's the main thing. There is in one of those homes a single mom living with a young child. So I think those are the kind of tenants that you're looking for with just those types of tenants.

33:32There are less of them. So I think that the 3-2, 4-3s in general are much more appealing and easier to turn over.

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39:02So it's ironic because of what I do, right? So I think part of it, there's almost like, just to kind of preface it, there was a desire that I had, I think, almost to make a point of like, I want to use my knowledge to add value to a home and I'm going to remodel it and I'm going to do this kitchen and we're going to do it very affordably and I know how to sub out trades. And I think that there was more emotion that went into it than logic. And you quickly find yourself spending thousands of dollars on a project and you look at it and you go, wow, it's beautiful. But then in hindsight, how much more rent did that get you on a monthly basis versus the cash you spent on it?

39:39So that wasn't worth it. I mean, I can look back in hindsight and say that. In fact, my wife and I, we did an interesting exercise. We just recently started using a software for the first time to input all of our expenses specifically for each rental. And it has a way of collecting rental payments and things like that, creating contracts. and we summed it all up and we saw for all of the six houses over the course of the last five years or so how much money we spent and like what those big chunks were. And I think in a lot of instances, it just, it really wasn't worth it. So it was everything from just that, from like a financial perspective that it didn't pan out for us.

40:16But also it takes time away and I think I went into hiring a contractor, again, very ironically, like very willy-nilly thinking that it was going to be somebody that maybe was as good or as a... you know, trustworthy as maybe I would expect them to be. But then you have those instances everyone hears about of like contractors that don't show up or that do shoddy work, and it creates headaches and your time is money also. So we learn from that a lot. And I think that I'm much more interested now in sort of the strictly turnkey properties. And that's what we're shooting for.

40:50Tony J. Robinson:Dean, so it sounds like there were two main issues that you bumped up against. One was maybe over rehabbing for the type of rents you could actually command on the back end. And the second was, which is a general, I think, challenge, but it's just finding good contractors. So if we can break down each of those separately on the over rehabbing side, because I think to your point, a lot of rookies get caught up in the emotional aspect of, I want something that's beautiful. Looking back or with the experience you have now, how do you balance the desire for, I want a good product with knowing what you can actually get in your rents on the back end.

41:28Tony J. Robinson:How do you balance those two things? Yeah. I mean, ultimately, like many things in life, I think it comes down to experience, right? And you can't really fake that. You got to just go through it and it is what it is. And we've learned that in that category of property, right? When you're looking at sort of a, let's call it an entry-level rental, you're not looking at high-end luxury properties. In general, that difference in marketability is very little between a house that has a flipped kitchen, right? Maybe you're talking about white shaker cabinets and quartz countertops and things like that, laminate or vinyl flooring.

42:06Doing those upgrades versus having a house that maybe has its original cabinetry from the 50s or 60s that have been painted over a couple times. really you're not talking about a huge difference in what those can rent for. And definitely not one that makes sense to do over the course of the home, unless if you're looking at things like, you know, just the equity in the home, and maybe it will be something that you turn over very quickly and try and resell it or try and get a home equity line of credit, which I think that's the part that we're kind of struggling with next is like, Maybe there's a way to take advantage of these things that we've done to flip it in our favor to now, you know, kind of create maybe a new strategy for investing in properties and how we source that, the cash for it.

42:52But in general, on this point specifically, yeah, we just discovered that it's not really worth it.

42:57Tony J. Robinson:And I think that's the important lesson for the rookies that are listening is that the market will always dictate how high your rents can go. and to Dean's point, if, you know, I'm just going to use, I'm going to make up some numbers here, but if the maximum rent you see in a market is 1500, it's probably at 1500, not because no one's built anything nice enough for, you know, 1700 or 1800. It's just that that specific part of the market can only afford up to 1500. So it doesn't matter how nice of a rental you give it, 1500 is the ceiling for that specific property. And whether you're renting, whether you're flipping and we're talking about ARVs, whether you've got a short-term rental or midterm rental, and you're talking about average daily rates, they're all impacted by the same upper limit within a certain market.

43:43Tony J. Robinson:So as a rookie investor, you've got to do your research to see, hey, what is that ceiling for rents, for ADRs, for ARVs that I need to be aware of? And then what do I need to do to make sure I don't go over that as I'm looking to rehab these different properties? I got one last question for you, but just for the rookies. We recently interviewed my designer, Brianna Michelle, on a recent episode. It was 590 something or other. You guys can look back and find it. But she talked a lot about the process for designing renovations and how to make sure you're doing it the right way. So go back and listen to that episode.

44:18Tony J. Robinson:Dean, I've got one last question for you. And first, I just want to say, you said you put down about 25 % on most of these deals. So not only are you aggressively paying down your debt, but you also have a decent amount of equity to start with at 25 % down, right? You've got some 75 % that your loan is taken up. So values are going to go up. So you're probably going to get some equity growth as well. So it feels like you've got a really good plan in place. But I guess when you picture success in real estate, what does that look like for you? Success in real estate for me is just financial freedom, right?

44:48That's the bottom line. I'm not necessarily trying to build the biggest portfolio in the world. I'm not competing with anybody. I just want to be able to do whatever I want whenever I want to do it. And that's really what it comes down to. So I haven't pinpointed what specifically that is or what that number is or how many homes that equates to. But the success for me is just giving my family a comfortable life that we all want to enjoy from. That's it. That's all it comes down to for me.

45:22Ashley Kehr:Well, Dean, thank you so much for joining us today and sharing your story, your journey and giving such a cool perspective on what your strategy is. Can you let everyone know where they can reach out to you and find out more information? Yeah, of course. So my website is homebuilddean.com. I like my name, so it's kind of like home building. And same thing on Instagram, homebuilddean on Instagram. we try and help both homeowners here in California with any remodeling they need to do but also we give a lot of tips and tricks for people all across the country that are investing in real estate or they need to do any remodeling of what kind of things they can look out for when they're in those adventures.

46:03Ashley Kehr:Well, thank you so much. We really appreciate you taking the time to join us today. I'm Ashley, he's Tony and we'll see you guys on the next episode of Real Estate Rookie.

46:14Tony J. Robinson:I'm not giving up. I am selling the building. The final season of FX is the Bear. The restaurant is flooded. Everything's either going to be okay. No, stop. Or not. We are outgunned and we are outmanned. We have each other. FX is the Bear, the final season. All episodes now streaming on Disney+.