How I Quit Corporate with Just 3 Rentals (Real Estate Changed My Life)

25:12So I think it really does vary on the market and kind of who's out there. But as we talk more about the renovation and the rehab, you said, James, that you like, quote unquote, design for premium. What does that actually mean inside of your rentals? I like to provide a high class experience, I guess we'll call it. I definitely target the higher income earners in the area. And to be frank, a lot of the tenants in which I'm pursuing, these are people, the households that are making a quarter to half a million dollars a year. They're typically in their family formation years, late 20s, early 30s, or they're possibly empty nesters who are downsizing from their$3 million house to a million and a half dollar house.

25:57And they need somewhere to stay while their house is getting built for two years. These are the people that I'm really targeting. And surprisingly, there's a decently strong market for. And a lot of these people don't want the high upkeep of a single family with a lawn. They want something that's spacious, but at the same time, easy to upkeep on their own if they need to. So that's where it comes into the side-by-side characteristics, providing that single family feel that provides comfort at the end of the day. And then working to add some of these modern finishes that really kind of stand out.

26:29You can't do like a landlord special. You paint everything white and you move on with your day. I mean, I try to provide higher class appliances and really just try to go after that highest tier rent. And one of the other big things that helps kind of design for a premium, honestly, is fencing in your yard and allowing pets. Because all these people are in their late 20s and 30s. They all have a golden retriever or they have cats and they have, you know, they might have young kids. And it's, it really helps provide, I think every rental I have right now has some kind of bet. And it's because that's, that's the caliber of people and what you're looking for.

27:07James, I'm curious, how, how quickly typically are you able to fill vacancies? Cause you're, I'm just like, since you're going after such a very niche renter, I'm curious if it's so niche and maybe it takes longer or is there such high demand for that type of product. It is surprising how quickly, like instantly. Per my leases, I have to get a 90-day head start on notice if they're going to move out. I start showing 60 days out. I'm looking at a week turnover. I haven't had anything longer than maybe two weeks. And that was just because it was like the end of the month versus middle of the month.

27:46Yeah, it's a week turnover for me to patch holes. I like replaced a sliding glass door, something small like that and move on. It's crazy. And there's a I'm looking at four to five offers for each property. It's it's it's lucrative. It works out well. And then I can kind of go through and pick the best of the batch. It's so interesting, right? Because we're we're at this weird place in the economy where, you know, there's all this talk about, you know, the economy is slowing down. Is it heating up? job numbers look weak one day and, you know, the inflation looks good, then it looks bad. And there's all these different elements that are going on in the economy right now.

28:23But I think, at least from what I've read and what I've seen, that one part of the economy that's remained a little bit more resilient are the folks who are in that higher income bracket, right? You said, you know, a quarter million to half a million bucks a year is like your typical tenant. And those are the folks who are maybe less impacted by the fluctuations we've seen in the economy recently. It's the people who are maybe like in the middle of that bucket, right? Or maybe a little bit more impact by what's going on right now. And I think the reason I bring that up is because for all of us who live in high cost of living areas, we might actually be sitting on the type of tenant or in the type of market that would be able to sustain some of these ups and downs.

29:05And maybe the folks who are in less expensive markets might see more challenges. But to that point, Ashley, I guess I'm curious to you, right? You mentioned earlier, you know, 800 bucks and, you know, James is talking about 6 ,000. What are you seeing in your rentals right now? This conversation is so timely for me because my live and flip, I'm, you know, nine months into it and I've actually started to consider moving out after a year and renting it. And when I bought this, I 100 % thought there was no way to do that because it was too big. I would have had to charge too much. But right now, I think there actually is a need for a single family house with a garage that has more than three bedrooms.

29:55And someone who can't afford to purchase a property or can't find a property would actually pay the premium that I would have to charge on the property. So my mortgage payment is around $2 ,100. And they pay all their utilities, take care of everything. So that would pretty much be my cost. So I would want to rent it out for$3 ,000. I would want to have at least$900 in cash flow a month. And I just think that is so ridiculous. Why would somebody pay that much more when they could buy the house and just pay$1 ,000 less for the mortgage. But right now, it's not that easy for someone to go and purchase a property to buy a house, or they just don't want to pay that interest rate and are still waiting for rates to come down.

30:50So I got to do a little more math on it and run the numbers, but I'm really interested because there is nothing available that is not a two-bedroom or if it's a three-bedroom it's in like an apartment complex like i don't know where families are living that have to rent yeah so solving that some that i'm at need it's just an interesting take james you know to say like hey we're going after a very specific application i'm i'm surprised every time i'm honestly every time i get an application and i you know i the background checks and i see the kind of money of these people have, it's like, why are you renting from me?

31:30It makes me want to do like a testing. Like, okay, let's just put it up and see what happens. There's a bunch of guys like that. But James, you talk about background checks and it brings me to my next question on tenant screening, because I know one of your units got raided by the FBI. And this is probably like, you know, one of the worst nightmares that a potential landlord can have. So talk to us about how you found yourself in that situation. Yeah. So when I first moved out of the first property and moving to the second property, I had to rent out the unit that I was house hacking in. And so I rented it out.

32:14I found a potential tenant who he was making a lot of money. We're talking three quarters of a million dollars a year. 800 credit score, squeaky clean background check, no problem. A guy from the town I actually grew up in. And he had a younger son who was in his late teens. I didn't think anything of. Apparently he was going away to school or something. So I approved him because he was ready to go. never missed a payment, no problems. And then like six months into it, I, into the release, I get a call from a bunch of my neighbors, uh, the ATF, the FBI, state police and local police were all at my house.

32:52And funny enough, I was on my way there anyway, because I was there to check on a hot water heater, I think, or hot water tank. And, um, anyway, I show up and they're hauling everybody out of the house in handcuffs. Uh, I actually, like I had mentioned, there's a three car garage there and I have a storage unit above it where I keep my stuff. So, and I have some like, I have some equipment and stuff up there. And so like, they're going through all my stuff. They're asking me a bunch of questions. Well, it turns out, uh, this guy had actually, his son, uh, had actually committed vehicular manslaughter as a kid.

33:25And, uh, he had gotten out of jail, was on probation, but he had violated in some sense or another. Uh, and it turns out, he was actually like CNCing bomb parts suspiciously and some other stuff. So that's why the alphabet agencies got involved. So ultimately it comes to the idea that you can't just screen the people who are the money makers. You have to screen everybody. If they're over 18, they have to get screened. It was definitely an interesting scenario. Didn't miss a payment, luckily. But definitely something I didn't know how to deal with at the time. It was just kind of like, okay, you guys do you.

34:04They wouldn't let me in my own house. They're like, you can't go near him. So I guess in that circumstance, what does happen? So did the father stay living there? Was the father arrested and the house is vacant? No, the father was not involved in the crime. He just kind of got in the way when they were trying to take the son. So they just briefly put him in handcuffs to calm him down. They took the son away. And then a week later, I got my next month's check. Yes, and the father kept living there. Yeah, he just stayed there and then he moved out west, I believe. Actually, nice enough, he actually gave me his security deposit as a gift for my wedding.

34:46I think it was like a sorry about my son. Sorry I didn't tell you about that, by the way. So nice enough for him, I guess. Such a crazy story. And I think that's the part of landlording that we don't talk about enough is that sometimes crazy things do happen. For those of you who have been around the podcast for a while, you may remember my story of Gina Katz, the drug using Airbnb guests I had who broke into not one but two of my properties. But that's a story for a different day. James, you're killing it right now. The deals are cash flowing, but I know you're thinking creatively about how to grow your portfolio.

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39:30So you mentioned a potential play to split a duplex into two condos. And I think we've, you know, we interviewed Leka Devtha, who also talked about like condoizing or I can't even what phrase she used, but something similar to that as well. What exactly is that play? What happens there? So I'm also doing a little research on this. I've gotten caught up in a few other things, so I haven't gotten to divvy into it. I've been talking to my real estate attorney and I need to dive in a little bit more. but zoning does allow it. And essentially, my second property is a prime example for this, where I purchased the property for$900 ,000.

40:08It's side-by-side townhouses that are huge, 3 ,000 square feet each, four bedrooms, four baths with two car garages below. They're perfect for this. And luckily enough, recently a townhouse, an actual subdivided townhouse just sold for 1.1 that's actually smaller and more outdated than mine in a similar area to mine. So the idea would be to legally go through the process to subdivide the units into two condos to then sell one of the condos to wipe out the initial debt I have on the two family property, which would probably require some kind of bridge loan between the two of them. And then ultimately what that would allow me to do is I would pretty much keep the same cash flow that I have from that property while we're completely wiping out the debt.

40:56So in theory, my debt to income comes shooting down. My cash flow stays the same, which gives more flexibility to go out and find more deals and to invest further. So it's something that I'm toying with right now. Because as you can imagine, with the amount of, I would call good debt that I brought on, obviously your debt to income creeps up on you. So it's okay. What do we do here to get around this? Now, you've only spent around$100K to actually acquire over$3 million in assets. What are your plans going forward as far as tapping into the equity you have in the properties now? Yeah. So I'm currently going through the process of getting a HELOC application completed.

41:36Cash out refinance, as much as it sounds nice, I have that 2.7 % and that 4.3 % interest rate and it's really hard to let go of that. Those are hard to give up. So honestly, I'm looking now at a HELOC options because at the end of the day, I'm not sitting on a bunch of cash and it's not coming from daddy or somebody else and that's not coming from anywhere. So how do I tap into whatever equity I have now, which is near$800 ,000 in equity between three properties? So I'm trying to look at it, how to pay for a down payment and renovations, honestly, moving forward. And I think there's so many investors who are not trapped, right?

42:14Yeah, maybe trapped is the right word, who are trapped into these low interest rates and they don't want to touch it. And I couldn't imagine that anyone who, you know, sub 3 % refinancing anytime soon. Yeah, because we've got, I think my lowest interest rate right now on one of our rentals is 2.65%. You know, it's like, man, I'll never get rid of the property. I actually saw someone post on Instagram this today and I didn't finish reading it, but they were writing about like how it's such a big dilemma for people as far as like, okay, you want to like sell your property or you want to move, but you have this really nice interest rate and you feel almost like stuck in that property.

42:59So I didn't read the whole thing, but like my solution is turn it into a rental and then you can still move. So you, as you think about scaling, we're talking about tapping into some of the equity that you have, but I also know, James, that you're maybe eyeing some different strategies, right? A lot of what you've done so far has been house hacking these different side-by-side duplexes, but you're eyeing some short-term rentals in, you know, the Florida area. What's the vision there? What's the motivation behind that potential pivot? Yeah. So I know with a good team, you can really do a short-term rental anywhere in the country once you set up that good base of, you know, local contractors and stuff.

43:34Honestly, uh, for somebody like me, uh, my old man, I moved him and his wife down to Florida, um, outside the Tampa area. So I'm very familiar with the market now. Uh, as you probably are aware, Florida's market is down, making it a decent time to buy. Um, so I'm looking at some, some family oriented beach style, uh, areas outside of Tampa. Uh, But in particular, having my father, who's a contractor, be within 45 minutes of an Airbnb or something like that is huge in case of any service-related maintenance issues that could pop up. And I really feel like that with the time that I have now, I can kind of provide a luxury rental experience in a short-term format like I do now for the long-term sense.

44:20And I can provide a higher-end customer service as a host moving forward. So I just want to diversify. I feel like once you kind of get three properties all around the same area right outside New York City, it's like, okay, what can I do to maybe get a nice small single family in Florida that will pay for itself in 25 years? And then I have a house in Florida that I could use. And, you know, you can rinse and repeat, you know, a bunch of short-term renters have done it before. So it's something I'm looking at. So James, I'm curious, what was this conversation with your dad? Like, I want to get you this house in Florida.

44:52You're going to have a great time. It's going to be amazing. Move down there. And then you can be my maintenance guy. He's bored. He's like your classic blue collar guy who gets up for no reason. Like he gets up and he just needs something to do. So like they bought a house that was a move in new build and then you start remodeling it. Like he's that guy. He's just like started working on it. Well, you know, the fan could be over here. Let me just climb up in the attic and move it. Like he's that kind of guy. So he's all for, and I think doing something with his son would make him happy. But ultimately, like he was on board.

45:33He's got all the time in the world. He'd love to have something now. He doesn't want to retire. We'll call it, you know? Well, what advice would you have for rookie investors who maybe live in an expensive market and don't feel like they could actually do house hacking that it's not achievable for them? It's definitely doable. So I would definitely try to start with the two or three family model. You know, anything you can kind of get your hands into that makes sense. You can still use the creative loan programs that are low percent down like the FHA or 5 % down Fannie Mae. You can still make aggressive offers, maybe if you change up the terms in those offers itself.

46:14But the biggest thing is like, there's still for sale by owners out there. There's still, you know, talk to your manager like I did and his neighbor wants to sell his house for a silly price. Or if there's a house that's poorly marketed, like the opportunities are still there. I just had one of my best friends just got a triplex in our area for$900 ,000. So now he lives rent free. I should say mortgage free between the other two properties paying out. So it's totally possible. When you look at the numbers on paper, it's hard to swallow that, okay, I have a$7 ,000 mortgage. That's tough to be comfortable with at first, but it all comes down to cash flow.

46:51If the numbers work and you can qualify for it, I think it's worth investigating deeper. And James, you have an incredible story. And my hope is that many folks are motivated by what you've shared, the ability to get creative, the ability to be scrappy. And I love what you said at the top of the show where it was a mix of luck. You know, there were some interest rates working in your favor, you know, but there's also some hard work, right? Like following up with the same buyer for four months in a row, not being afraid to have those conversations. But I know that there are probably some people like myself, even Ashley, right?

47:26like who have young kids, young families, spouses who maybe don't want to live side by side. It doesn't mean that house hacking doesn't work. It just means you have to find the type of property that would still allow you to house hack in a way that supports your lifestyle. And we've, you know, like I go back to Laker, but she also talked about the detached ADU. And maybe that's the play for you where you buy a home and there's either maybe an existing ADU in the back or you build an ADU in the back. And that's still house hacking. That's still a way to leverage your primary home and turn it into some sort of revenue generating activity for you.

47:58Yeah. I've been, my poor, my poor girlfriend now fiance has done all of these house hacks with me. And as soon as I do the live-in kind of renovations on these properties, as soon as it's nice, really nice to live in, it's on the next one. Like I feel so bad. She has been such a trooper. Luckily she sees the light at the end of the tunnel. Like, all right, everything we're doing here in the mid late twenties is going to set it up so that, uh, we can get that how we can, we can build that house that we want in our thirties. Um, so luckily she gets the bigger picture, but yeah, it's tough. It's, I can't imagine doing this with kids.

48:33A lot of like, we won't even get a dog. We have two cats. We'll get a dog. Dogs will get into everything. And, you know, next thing you know, is eating my tools or something. So I, yeah, it's tough. It's, it feels like a young man's game sometime. We actually had a guest on that moved every year over 10 years with his family. So they didn't house hack, but they would move every single year with their kids. And I think they have four kids, maybe some accumulated kids over the years, but moved every single year as a family. Yeah, that's the hustle that a lot of people don't see. They see the Instagram post, you're talking about, you know, the properties and the cash flow, whatever it may be, but they, they overlook the hustle and the sacrifice that goes into it.

49:11So I guess last question we can we can in here, James, what, what was the moment that you realized that real estate had actually changed your life? So obviously bar, you know, cash flowing$9 ,000 a month now, uh, or the$800 ,000 in equity that I might have. Um, honestly, uh, I, I went to school for supply chain. I, um, you know, I had a corporate nine to five job, um, and having the ability at 26 years old to get up and go, I think I'm done with this, you know, after five years of working corporate, which, you know, it's very different than a lot of people's lives. It's, It's crazy. And I have now the freedom to kind of work on the properties as I want.

49:51But ultimately, I can pursue more time doing the things that I like to do that make me money. So I mean, like I right now I work on the properties and then I do a high end handyman service on the side. So like I wouldn't have had that opportunity if these properties didn't exist. Well, James, thank you so much for joining us today and telling everyone your journey and your lessons learned along the way. Can you let everyone know where they can reach out to you and find out more information? Sure. My Instagram is listitwithkit and also jameskit. And then I believe, I think that's it. Yeah. Well, thank you so much for joining us and congratulations on your success with your real estate journey.

50:37And we can't wait to see how much further you take it. I'm Ashley. He's Tony. And we'll see you guys on the next episode of Real Estate Rookie. Hey, rookies, if you're watching this, we want you to apply to be a guest on the Real Estate Rookie Podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our Real Estate Rookie Podcast. Now, look, you don't need to be an expert. You don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener. As a rookie investor, especially if you just got your first deal, it is all fresh in your minds.

51:08And you are the best person to tell your story, give your experience on how you got it done to help someone else get their first deal. So head over to biggerpockets.com slash guest if you want to be a part of our show. Again, that's biggerpockets.com slash guest and we'd love to have you on. Amazon bietet allen frischgebackenen Eltern in den Logistikzentren extra Familienboni. So wie Anton, der gerade seine neugeborene Tochter im Arm hält. Your Glucksen is for him the most beautiful sound of the world. That means, maybe that sound is the most beautiful sound of all.