The W2 Employee’s Roadmap to Financial Freedom (Buy Rentals While Working 8-6)

0:00If you're busy, if you work 50 hours a week and you have a lot going on, that doesn't mean you cannot invest in real estate. And today's guest is going to show us how he works 50 hours a week plus and still has made time to get three deals under contract. So today's guest, Rashad George, is going to walk you through his journey again of being a busy professional who started off buying super easy, almost turnkey properties, graduating all the way up to almost full tear down gut jobs. And you'll hear his journey along the way and why he decided to strategically partner to help continue to build his portfolio.

0:33you. And at the end, him and Tony let us in on a little secret of the short-term rental tax loophole, and it explains why Rashad is going with a certain strategy.

0:48Welcome to the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And with that, let's give a big warm welcome to Rashad. Yeah, it's wonderful to be here. I'm happy to be here, and I love listening to you guys. Well, Rashad, before real estate, you went from debt collection to the Air Force to defense contracting. How did these career shifts shape the way that you think about money, risk and long term freedom? Yeah, absolutely. So starting with debt collecting, it really opened my eyes to people making not necessarily the greatest financial decisions. I got to see everything from people who got down on their luck to people who just thought they needed everything and couldn't afford it.

1:25So it really helped ground my expectations of how I should be managing my money. As far as the Air Force goes, that really helped me understand what it means to truly take control of my path in life. I learned a lot of good stuff from the Air Force. It really helped me learn, more importantly, how to manage myself and how to think of everything in terms of moving forward. As far as defense contracting, it's pretty much the same thing I did in the Air Force. And I love it so much, which is why I'm still doing it. But that's really helped me gain the income that I need to invest and more importantly, stay connected with the military community.

2:01So Rashad, I'm just curious because like the debt collection, there's definitely maybe like a stigma around that career path. But I also think that maybe there are some skills that translate into being a real estate investor as well. And I guess just what, aside from just like the mindset around like the money piece, being in that field, I would assume deals with a lot of rejection, a lot of angry people, a lot of kind of like walking the line and kind of building relationships. So I guess, was there anything else aside from just like the mindset around money that you built from a skillset perspective that you feel this helped you as a real estate investor?

2:38Absolutely. I would say sympathy. And if I'm being honest, a little bit of empathy as well. I came across a lot of people who were just down on their luck and being able to sympathize with them while being necessarily, I don't know, being firm, but being fair is something else that I learned from that job. And also taking a beat to just go, hey, I understand what you're going through. Maybe not be so harsh. And I think that's been very helpful with some of the self-managing that I've done. You know, we talk a lot or you hear a lot about debt collectors, but from the other side, right? The people who are having the debt collected, but we don't necessarily hear it from the folks who were doing the debt collecting.

3:15But, you know, hey, there's still, I think, a benefit on being on the other side as well. Actually, in one of the towns near me, there was a huge debt collection agency. And that was like one of the jobs a lot of people went to like fresh out of high school if they didn't go to college or they did it part time while they were going to college was working for this debt collection agency. So like it was very interesting to hear their side of things as to how it's different. But a lot of them made a lot of money doing that. But really, you have described yourself now as a high income tech bro, but your real estate journey started earlier than that.

3:55So take us back to that first house and you had a$100 ,000 gain post COVID. So what did that moment really unlock for you mentally? Yeah. Seeing that$100 ,000 check, just anything over six figures, it just helped me immediately understand there is something to this. Friends of mine have been telling me you should be investing in real estate, but that's when it hit me. I know it's an anomaly and I'm okay with that, but still it just, it unlocked the fact that I can move forward. Maybe not with the expectation of making a hundred thousand dollars each time I sell, but with the expectation of getting some sort of gain and understanding it clearly.

4:32I feel like that first financial transaction as a real estate investor is always a bit of an unlock, right? Like I remember the first time I got money deposited for my first rental and, And because of, there was like a lease up fee with that. And I think there was some maintenance involved. Like it wasn't even enough to cover the first mortgage payment because like the property management company had like a lease up fee. And it's like, I was in the negative that first month, but it was still, it was like$684. And I was like, oh my goodness. Like I actually made money from real estate. And it is, I think a bit of a mindset shifting moment when you realize, hey, that this actually works.

5:08But 100K is a lot. So I guess I'm just curious, quickly, Rashad, if you can walk us through, how did you net 100K on your first deal? Yeah. So it all started back in 2017 when I just could not find myself living in an apartment for more than three months. I was in town for maybe 11 days or so. And during that time period, I found myself an agent. I left for two and a half months. Every day I was texting back and forth with that agent looking for a home. I found something. It took me a while to really pounce on it, but I found something that I really wanted, bought that home, lived in it, did pretty much nothing to it, then got that$100 ,000.

5:43Of course, I should have been a little bit smarter at what I did with the money. I did kind of recycle it, but I wish I had invested it. And ultimately, I wish I had kept the house too. So was this house the brand new build or the brand new build comes next after this? Yeah, the house that I first purchased was built in, I think, 2011. I purchased it in 2017. Then the following property, actually, the next property I bought was my next primary residence. But after that, I bought my first investment property. And that one was a brand new build. Let's go through that experience of why you decided to do a brand new build compared to buying an older property like the first one that you had purchased.

6:20Sure. Yeah, I made the decision to buy a brand new build simply because I didn't know as much about real estate investing as I do now. So I wanted something that was a little bit easier from a time perspective. And what I mean by that is I didn't want to always have to be worrying about fixing something or having a new problem that I did not really have any experience with. So I called up my agent and she put together quite a few different options for me. But the majority of what she put together were brand new builds for that very reason. I made the decision that maybe she's right. There's something to this.

6:49Got the new build. Haven't really had any trouble out of it. And all the trouble that I have had has been warranted anyways. So basically, you put together your buy box, your criteria, what you were looking for, and then your agent came back to you with these deals. And I think that's such a great lesson for rookies as to like, that is like one thing you should be doing right now. If you haven't reached out to an agent or you haven't even got your first deal is really defining the criteria of what you're looking for and building out that buy box and building out your criteria of what you want in a house.

7:23So like the people who are searching for deals for you and even you, when you're looking for deals, scrolling them less, you know exactly what you are looking for. Ash, do you remember the guests we interviewed and his entire strategy was buying new builds? So for those who aren't familiar with the new builds, if you're buying in a larger subdivision, they'll typically release homes in phases. So they don't release everything all at once. They'll build out a small phase and then they'll set the prices there. Then they'll do their next phase and they'll increase the prices. The next phase, they increase the prices.

7:53And there was a guest we had interviewed where his entire strategy was buying these properties in phase one as a primary residence living there for one to two years. Sometimes he'd keep it. I think sometimes he'd flip them. By the time he got to phase five or 10 or six or whatever it may be, the value had increased so much and he could sell it for a big gain or do a cash out refinance to get some cash back. And that's how he built his entire portfolio. So I actually do really love the idea of the new build as a strategy. But sometimes it is a little trickier to get cash positive. So were you making actual cash flow on this deal?

8:29I would love to say that I was making cash flow on this deal. I'm going to go ahead and say no. It pretty much breaks even. And I kind of got a little lucky here because I purchased the property after it had been appraised. So when it was originally appraised for tax purposes, it was appraised as just the land value only. So that's what I paid for year one. Year two rolls around on paying the taxes on the dwelling as well. That being said, technically you could say I cash flowed, but I didn't actually pull the money out. I just left it in escrow. So all in all, I'm counting that as pretty much neutral.

9:00And I'm okay with that, especially as someone new with no expectations of hitting it right out of the park from the get-go. Give me something new. Give me something easy. Let me learn from it and then try again on the next one. So for a rookie listening, what are some of the things that maybe made you feel more comfortable that you were going to break even on this property? And what should a rookie look for or think about before they actually decide, you know what, I'm okay with doing break even? So one of the things that made me comfortable breaking even is because I had the cash reserves, just in case something were to go incredibly wrong.

9:35And who knows, hailstorm, house gets robbed, any number of things that happen, maybe they all happen at once. I've got the cash reserves to sort of mitigate against the risk. If you don't have the cash reserves, I would say maybe not go the route of going completely negative cash flow or neutral. But if you can partner with someone who can help you on the cash side, that might be a route to go as well. So long as the understanding is this is not a forever thing. And of course you have to do better next time. So would you do a new build again, Rashad? I guess you talked about some of the pros and cons, but given what you now know, do you feel that's a good first step for a rookie investor?

10:09I think it is a good first step for a rookie investor, specifically folks who are looking to invest, not necessarily in their local area. If they get something new, it's a little bit easier to deal with. And I do want to kind of quantify this in a time perspective as well. You are going to spend time managing your assets. There's no way around that. But for something that's new, it is a lot less time. For someone like myself who has a 40-hour-a-week job, I also get stuck in traffic at least two hours a day. That leaves me 10 hours that I'm already just dedicating to work. So I have to sort of use my time in a wiser manner to make sure it makes sense.

10:45So if anyone else is in that predicament, then sure. But if you have more time than you have money, I would say maybe the new build might not be the way to go. We have to take a short break, but we'll be right back. While we are gone, make sure to subscribe to us on YouTube at Real Estate Rookie. We'll be right back. Want to invest in real estate but don't have the time or know the best local markets? Rent-to-Retirement has got you covered. Here's the deal. They've helped thousands of investors just like you find turnkey homes across the best U.S. markets. And best of all, they do all the heavy lifting for you.

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12:57It doesn't cover lawsuits, professional mistakes, workers' comp claims, or cyber fraud. That's where Next comes in. General liability for real estate businesses. Errors and omissions for agents and brokers. Workers' comp. Cyber insurance. Coverage built for real estate operators, not homeowners. Protect your real estate business at biggerpockets.com slash next. Okay, welcome back. we went over Rashad's first deal, the new build. But for your second deal, you actually decided to partner with your sister and form an LLC. So money and family, what conversations did you have upfront to make sure that this partnership was going to work out?

13:34Yeah. So first off, we have an incredibly good relationship. There's no way I would try this with anyone, whether they're family or not, if I didn't have a good relationship with that person. And the conversations that we had were, what questions do we need to answer and put in front of an attorney to form our articles of organization? While we both trust each other, trust only goes so far in business relationships, and we've got the paper to back it up. So pretty much we were asking, what happens if either one of us dies? What if we come into a disagreement? What if I want to sell the property and she doesn't?

14:06Those sorts of things. All of those questions, I think an attorney goes a long way in helping people get. Now, shameless plug here. Ashley and I wrote a book, Real Estate Partnerships. You guys can pick it up at biggerpockets.com slash partnerships. But in that book, we talk about a lot of those questions, like what Rashad just mentioned, that you should ask before you get into a business partnership with someone. And another book that I usually like to recommend as well is called The Partnership Charter by David Gage. It's not specific to real estate investing. It's more so a general business partnership book.

14:35But another one that kind of prompts a lot of those questions to ask to make sure that the partnership stays smooth if things do get rocky. So you guys asked a lot of those tough questions up front. But I think even before that, Rashad, what made you feel that getting into a partnership was a necessary next step for you? Ah, I love this question. I got into a partnership for the reason that most people don't necessarily consider, at least not the investors that I know. It's for the time and skill set. We both have different time, different amounts of time, and our time, our free time lines up differently.

15:10Also, our skill sets are differently. I like to focus on the operations type stuff, and she likes to do what I call the nerd stuff in the back end. Running all the numbers, making sure I don't go too crazy with operations. From that perspective, I think it works out incredibly well. It's really what I look for is skills that complement each other. Time is another big one. And of course, they have to have a great personality if they're a partner. That's just something I look for because I don't want someone who's customer facing potentially to just have a terrible personality. And I personally think the last reason to ever form a partnership should be lack of money, especially if someone doesn't have skill.

15:44So after you formed this partnership, you guys decided to analyze over 200 deals before you actually found the right one. So was this a grueling process? And what was your process for actually sourcing these deals? Was it just MLS deals or did you have other tactics to bring deals in? Yeah, the process itself was, I would say, a learning process. It was not quick. And I don't want anyone to take away that it was quick or that we shortcut because we only did 200 or that 200 is a lot. You never know what the exact number is until you run the numbers enough and you're comfortable with it. But our process was is very lengthy.

16:23It essentially boiled down to looking at different zip codes in town for San Antonio and what HUD paid for those zip codes. We were specifically targeting Section 8. So that's how we were doing that. Once we found what HUD was paying, actually, once we found zip codes that paid pretty high, we looked at the price to rent ratio. That was also important. Then we started narrowing down to what fits inside of the amount of cash that we have. And that's how we pretty much landed on the first property that we found, which would have been perfect for us had the deal not following through. So Rashad, first, I appreciate you breaking down your process in such a systematic way.

17:00And when you say HUD, you mentioned that that's what Section 8 pays, right? So you're looking at who by the zip code is commanding the highest rent for Section 8 rentals. And then who has the best price to rent ratio? I mean, we're just comparing the rent to the actual purchase prices in those zip codes. And whoever has the best ratios where you kind of focus your time. So I love that approach. But were you just sourcing all of these deals right off the MLS? Were you working with wholesalers? What was your process for actually finding these different properties to look at? Yeah. Initially we were pretty much searching right on the MLS, which worked out pretty good through, I don't know, a confluence of conundrums.

17:36We ended up not purchasing when we wanted to purchase. So we had to wait a little bit longer and that's when the market was then swinging more towards a buyer's market. Then we were pretty much solely looking on MLS. We also used our agent who's been very helpful. She found some off-market deals and She also had some pocket listings. They didn't quite fit exactly what we were looking for, but they were really good. But yeah, MLS was, it was great. Even now the MLS is still great. Rashad, can you explain what a pocket listing is? Sure. Yeah. A pocket listing is just a listing that an agent has that necessarily, excuse me, a pocket listing is just a listing that an agent has that hasn't necessarily hit the market yet.

18:14So it's something that they're keeping in house that they can then set you up with before it ever hits the market. And now Rashad, you mentioned that the deal that you found that you're like, man, this one really actually does seem pretty strong that that deal actually fell through. What was the backstory there? Yeah, it was. I think we got some really bad vibes from the seller and also some bad vibes from the tenant. So we found this property. It was tenant occupied and HUD was already paying the housing choice voucher or section eight. And it was actually paying pretty good compared to what the monthly mortgage would have been.

18:48We found it, thought it was perfect. The seller did tell us that there was one thing wrong with the property prior to us going under contract. The one thing that he said was wrong was that there was a broken sewer line, which wasn't the only thing wrong, and I'm pretty sure he knew that. So we then go under contract, and that's when we find out, well, that broken sewer line then translated into a terribly cracked foundation. Just awful. That didn't turn us away up front. The thing that really turned us away was we sent our inspector over to do an inspection. He couldn't even do an inspection because the home was so, it was very occupied with belongings.

19:25I guess that's a nice way to say it. I've had a couple of those houses. Yeah. We fell out of contract because we couldn't even get a really good inspection. And there's just no way we're going to make an offer and follow through with it if we don't know everything that's wrong with the property, or at least most of the things that the inspector could find. It just didn't make sense from a business perspective. Just one thing I want to say, Rashad, is kudos to you and your sister for walking away. Because I think we've seen a lot of newer investors who get so emotionally attached when they've, like you said, you underwritten, you underwrote 200 plus deals.

20:00You finally found one that checks all the boxes. You're excited. You're like, okay, this is the one. We're here. We did it. And then you get to your due diligence period and things start to pop up that don't make sense. And oftentimes we can rationalize those things that are major red flags simply for the fact that we've got this emotional attachment to trying to get a deal done. But I think there's so much more discipline and the better investors. It's not about how often we say yes, but about how often we say no and our discipline in saying no. And I also appreciate that you said the foundation itself wasn't even necessarily what made you say no, because maybe that's something that we can get fixed.

20:33But the fact that you couldn't do an inspection at all could be tough. Now, I've actually never purchased a property that was tenant occupied. That's just always been part of my buy box. I don't want to deal with tenants. I want it empty. But Ash, have you ever had a property where you were maybe in a similar situation where you couldn't even get the inspection done that you did move forward with? And if so, how did you build that confidence in yourself? Yeah. I think I went into it knowing that it was going to need a full gut rehab on the property that this was a property that the actually like welfare family services had come in and taken this woman out of the home.

21:11She was 101 or 103 years old. I can't remember exactly. Living there alone. And it was the property was dilapidated. There was so much stuff in there. You could barely move. There was no heat except for one little fireplace. So she ended up being removed from the home. And then I'm assuming a court appointed attorney or somebody took care of the sale of the house and actually went on the MLS. And so we just bought the property knowing that this was going to be a full project. And we actually got pretty lucky in the fact that it was the first time I use a guy that has dumpsters and then he has a crew for doing garbage removal.

21:54So they've done a lot of rehabs for us. And this was kind of the first hoarder house where they were coming in to take us stuff out and they low balled it. And I feel bad because they really, really underestimated the amount of stuff that was in that house and how long it would take them. And, you know, looking at what they charge now just for like a regular clean out, like they definitely undercharged for, for that property for sure. But I would say like, if you can't like to make yourself feel okay, like you already have to have the mindset going and knowing everything needs to be ripped out and redone without being able to see what's happening behind or underneath all of this stuff.

22:36So Rashad, what deal did you end up landing on and what issues did you overcome as you went through that deal? Oh man, where to start with the issues? We'll start with the deal first. The deal, it was actually one that the agent had proposed to us a while back and we kind of thought, oh, maybe this isn't the one. We did a little bit more research. The pictures were terrible. There were only four pictures of the exterior of the home. And the listing agent wasn't even really willing to show us the inside of the home because it was tenant occupied until we went under contract. So automatically that just ruled out pretty much everybody that's not an investor.