September 12, 2019

5 Years, 300 Doors, Part-Time! with Jay Helms

Episode 319: 5 Years, 300 Doors, Part-Time! with Jay Helms

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REIS 319 | Part Time Real Estate

 

Many people have made real estate investing their full time job. However, is it possible to succeed in this business part time while doing other things you love? Listen to Jay Helms, a real estate investor and the host of W2 Capitalist Real Estate Investing Podcast, as he talks about having 300 doors in just five years as a side hustle while having his coaching job. Host Mitch Stephen and Jay also tackle property management, investing under a recession, and the value of entrepreneurship in this economy. Don’t miss this episode to get Jay’s free 10-Step Guide to Buying and Holding a Small Multi-family Rental Property that has been proven effective so you can start your part-time strategy!

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You will not believe the day I had. I had all this stuff going on and it all happened in one day. Do you ever have that? There’s no good plan. You’re like, “Let’s do it this week and three days late, we’ll start that,” and then everyone has time to laser and move forward. All of a sudden, I’m pouring 5,800 square feet of concrete slab and building stuff all over the countryside and it all lands on one day. I’m all wound up. I’m going to come down from that still. I’m trying to figure it out. I’ve got Jay Helms. He’s over there in Florida somewhere. He went to Dallas and says, “There’s something different in our heat.” I said, “There was no breeze.”

I live in the community called Gulf Breeze, which is right outside of Pensacola.

Jay specializes in the buy and hold. We’ve got a giveaway. It’s a ten-step guide to buying a small multifamily rental property. It’s at REInvestorSummit.com/helms. There are two sides to this coin. There’s the buy and hold and then there’s a sale on a note and the seller financing thing. They both have their pros and cons. Both of them can make you a multimillionaire in a short period of time or a long period of time. It depends on you. We’re going to debate that subject and talk about the pros and cons of each one. Maybe we’ll get some war stories out of Jay here.

I’ve got a couple.

You got to have a war story. You can get a war story anywhere, but you can probably write a book of war stories with tenants, especially before you get good at hiring and firing them.

The one thing I’ve learned, I wouldn’t say early on because it took me a year or two to figure this out, is professional property management is worth its weight in gold.

For me, I’ve been in real estate since I was 21 and I’m 58 now. I’ve been full-time for over 24 years. By now, I would rather bash someone’s head in with a baseball bat than to listen to one more live BS crap like taking my ceiling fan, walking off with my stove or my refrigerator. I can’t afford to be face up with these people anymore because I fricking had it. I had people shave their head and tell me they had cancer and out of the graciousness of my heart and doing what I thought God wanted me to do, which is what God wanted me to do. I let that lady stay in there for free for eight months. I finally went to check on her and I knocked on the door. Her mother came to the door and said hello. I said, “I haven’t heard from Kesha. I’m hoping she’s still with us and she survived her cancer.” She goes, “Kesha never had cancer.” I said, “Holy crap.” She came to the door still had her head shaved. It turns out she was one of those head-shaving people.

I don’t have anything like that, but you’re right. It sounds like you’re on full tilt. I learned very quickly that property management is not a business I want to be in.

The cool thing is you’ve got to get somebody between you and that, but the next question is how many properties do you need to do that? I was always under that impression that starting out, until you had about at least 30 and maybe 50 little houses or units, it was hard to get someone in between you and them because you weren’t making any money to begin with. You were struggling and learning your ropes and everything.

I started with our third property when I said, “This is not for me. I’ve got to hire somebody to handle these.” The whole thing with where we’re at now with the W2 Capitalist and realizing that you can have a successful full-time job and invest in real estate, I have to outsource almost everything. That’s why I’m focused on buy and hold where I like the flipping idea. I’ve never flipped the house because I don’t feel like I’ve ever had the time. I also have a young family. I think our third properties when we first initiated having a property manager implemented and we’ve been through some property managers.

That’s the other thing. First of all, the big problem is when you’re doing it yourself, it’s your money and it’s highly personal. That’s where the rub comes in. That’s where you can get yourself into some trouble, especially if you’re not long on temperament. Second of all, the people you hire, the other side of the coin is they don’t care because it’s not their money. First of all, you pick which knife you’re going to fall on.

Who do you want to manage? Do you want to manage the tenant or do you want to manage the property manager? There is no way of out of managing your property. You’re going to manage the tenant or you’re going to manage the property manager, one of the two.

Wholeheartedly, I say choose the manager. It’s the same thing with my collections on my notes. I got a note servicing company.

You don’t want to trust anybody else.

I don’t get paid to send out late letters and chase people around. I get paid to buy houses at steep discounts and get them using the income. That’s what I get paid at.

That’s how we were able to use a property manager with just 30 doors. We bought our first three houses in 2014. Right after the big dip, things started coming up, we got some heavy discounted properties. We bought them and there was enough margin in the deal to hire those property managers.

That’s also the next thing. All you do is you set up your numbers to handle the expense of property manager. Let’s talk about the cost. What does a decent property manager cost when you have three units?

It’s going to be about 10% of a rent on a monthly basis. Then you have the upfront cost, which is always negotiable. You can get somewhere around a half of the first month’s rent and then they’re going to keep any fees typically like late fees or pet fees or something like that to take on that initial marketing expense that they’re going to have. You’re right, it’s one of those things. I’ve been through probably three property managers now. I found one and he’s solid. I’ve started looking for properties in his city because I know when I find a property that it’s going to be properly managed. We’re in a couple of different cities, Mobile, Pensacola, we closed on a deal in Waxahachie, south of Dallas.

Professional property management is worth its weight in gold. Click To Tweet

Alabama is a good place to rent houses because I have some students who are trying to do the owner financing there. The problem they’re all having there is nobody has a down payment over $2,000 or $3,000, which is what the deposit and first one’s written costs.

What part of Alabama are they in?

It’s around Birmingham and outside of Birmingham. The houses there are very affordable and that’s what you probably are looking for in rent houses as well as in owner finance houses. The sweet spot is under $150,000 for me. Is that where you’re at?

Yep, absolutely.

When I say under $150,000, that’s what I’m selling it for. I’m trying to buy the house for $70,000 or $80,000 or $90,000 and then sell it for $150,000. In your case, you’re picking them up for $150,000 or less. There’s a whole lot more rate of return in the lesser expensive houses, but the turnover and the hassle can be a lot more too if you get too low on the property.

Because then you attract a different tenant base.

What keeps happening over there is they’ll have some money on there and then they buy a car that’s worth more than almost as much as the house they’re going to live in. They buy a fricking car that’s worth as much as the house.

I don’t know if you all have this problem in Texas, but in Alabama and there are parts of Florida too you go to, you’ll drive by this huge plot of land. In Alabama and Pensacola, this is going to be at a two-acre plot of land. You’re going to have a mobile home. Outside the mobile home, you’re going to have a brand-new Chevy truck and attached to the Chevy truck is a brand-new bass boat. I’m like, “Either they have their priorities messed up or I do. I’m not sure which one yet.”

This is what we’re going to talk about. We’re going to talk about how you should sell that nice house and all that stuff and you should get a mobile home and learn to live. Life is about living. Get the boat, get the truck, don’t worry about the house so much. I’m being sarcastic. Talking about management, let’s talk about the acquisition of these rentals. How do you look for them and what are you looking for?

We’re past the single-family homes now. When we look for rentals, we’re looking for multiple doors.

That makes a lot more sense. The one-offs, there’s not enough volume, there’s not enough mass. It’s as easy to go look for one thing than to look for another thing.

One of those things I find out the more I get involved in that circle, I’m thinking, “Have I missed out on this for so many years or if these many people have been part of looking for multifamily trying to gauge where that market is and where the saturation is not?” What I like about wanting that family is you close on one property, you get multiple doors. It’s one transaction. I love your concept of being the bank. I’m trying to get there because I hate dealing with banks. They are one of the biggest pains in my ass when it comes to this whole real estate investing. Are you familiar with the infinite banking strategy?

With the insurance? I went through that.

I would love to hear it.

My partner’s a CPA with Coopers. He was a CPA with Coopers and Lybrand, which is now PricewaterhouseCoopers. He was a managing partner in Austin, which meant like if it was a law practice, he had his name on the door. He’s one of those guys. He earned his way. He was there for fifteen years. The guy is the antithesis of Mitch Stephen. I’m street, this guy’s Wall Street, which is why he’s in the hard money lending business. That’s why we’re partners is because he’s everything I’m not. I showed him that the money for guys like he and I who were not multi-billionaires. It takes a lot of money to get into certain games and it takes a lot less if you’re dealing in the lesser parts of town, which is how I learned how to become successful was I could afford to play in certain areas of town.

He puts it out. I listened to this thing where you’re supposed to buy life insurance policies, they get invested. Then you can borrow against them. Tell me if I’m glossing over this. Eventually, you become your own bank and you’re lending and borrowing your own money, paying yourself back, which is a great thing. The problem is I went to him and I said, “What’s wrong with this picture? Why can’t I make myself pull the trigger?” I’m listening, but there’s something holding me back and I can’t figure out what it is. He said, “Mitch, the front end loads on those insurance policies are so heavy that it takes you three years or four years to get to where you’re breaking even. These guys that sell these policies, they get the first years of this payment or the bulk of it and they get paid. By the time you finish this and everything, it’s about a 7% rate of return.”

He says, “Here’s your problem. You make so much more than 7% on your money. It’s not even funny and you don’t wait years to do it. You do it in short periods of time.” He says, “This is what you’re feeling and the other thing is it’s going to divide you up and get money in pockets that you can’t get to. If you need it, that’s probably bothering you too.” Yes, on all counts, but he said the main reason why you’re stuck is you feel it but you can’t put your finger on it. He says you make way more than the 7% to 10% that they’re promising and you don’t have to wait for it. You’re going to make it tomorrow and these people are asking you to wait a year or two or three before the commissions get paid. I hope you’re not in the insurance sales business.

No. I’ve been toying around with this idea because the language they use to market it sinks in with me. If I can never deal with a bank again on buying and selling properties, that would be cool.

REIS 319 | Part Time Real Estate

Part Time Real Estate: People are under the impression that you need to have at least 30 or 50 houses before hiring a property manager. The truth is you should hire one sooner than that.

 

Let’s switch gears now. I have a course on Private Money Changes Everything. I have $16 million for the private money headed to $20 million steadily because when you start paying people back on time, these people are going with the ten, fifteen to twenty years. I have quite a reputation now of paying people on time for decades. It’s easier for me to raise private money now than some people, but I started off at zero too. The main thing is the collateral. Check out Private Money Changes Everything at my website, 1000Houses.com.  It’s target-rich. It’s a shorter course than some, but it’s right on the money on how I talk to these people.

I’m sure there are a billion ways. There’s Jay Conner and Alan Cowgill and I looked at all their stuff. We are all uniquely different. The biggest objection to anybody is, “I don’t have a track record. I have a bankruptcy.” It doesn’t matter. It’s about the collateral. It’s not about you. What is he going to get if you don’t pay him? If that ratio is good enough, then it doesn’t matter. I’ve used this all the time, it doesn’t matter if you’re Charles Manson, you should get private money. Who cares? Either they’re going to get paid or I’m going to get this piece of property. If the property is good enough then that’s it. Mainly, it’s about who to market to, how to market to them and how to get people to ask you if they can loan you money instead of you asking them. It’s you walking the talk to people about, “I’d like to talk about borrowing money,” and they get in this thing.

They get their defense mode up. I’ll check it out.

It’s completely worth it. I’ll give you my phone or you can call me about it. I’d love a testimony from you if you want to. The answer to the problem, though is private money. I have $7 million with an 8% five-year interest-only money. That was because most of the people that I’d been borrowing too were old and they didn’t want to go fifteen-year fixed, ten-year fixed. I don’t know if I’m going to live longer than twenty years. They have been with me for twenty years. It didn’t matter. They kept me up but they didn’t want to be locked in.

In case something else comes along.

The truth of the matter is these people all become my friends. If they need to take money out of the pile that they got or all of it, I’ll go replace them with someone else. I’m not going to say, “Screw you, Doc.” Then you use the banks to cash those people out at 4.5% and 5% on twenty-year-fixed, ten-year balloon stuff. You’ve got to strike with private money because they don’t ask any questions. You got to police yourself. They will be the first two or three loans maybe, at least the first one but after that, they don’t want to do anything. You police yourself. I never let anybody in over 65%. If I want to buy a house for 70% or 80%, I’ve got to put the rest of my money.

That’s what makes them want to loan the money. I average 58% LTV per person and sometimes it’s 40%. You can cultivate rich people by finding a 65% LTV loan you want them to do but go ahead and put 40% in yourself or put 20% on a zero-credit card or something for a couple of years and only ask them for 50%. Get in with them. These are the tricks that I’m teaching, like how to make a regular deal a solid deal. If you need $20,000 for the rehab and $50,000 to buy the house, don’t ask them for $70,000 on $100,000 house. Ask them for $50,000 and put $20,000 of the rehab on a 0% credit card and accomplish two things. One, pay 0% and two, make the loan and no brainer for them. Deal with them. You can’t come to complete strangers about those numbers.

Those don’t make sense to a complete stranger. You probably don’t need to be talking to them.

Try that to the banks. The banks have some good money right now. You’ve got to be in order. You have to have a track record so to speak.

It’s also scary. I rode by a bank that said, “Offering 100% financing.”

You guys in Florida have been doing that forever. The last time we had a collapse, I think you had a 110% overvalue because they were loaning based on what the appreciation was going to be in the next quarter.

I’m going to pick on our southern friends. Most of that was Miami-Dade County. I don’t know what the ratio was up here in Santa Rosa, Pensacola Beach, but most of that was Miami-Dade.

That was a disaster waiting to happen. When no one has any skin in the game and everyone’s even walking out with money in their pocket, who cares if the property is any good? They’ll patch up the holes though. They’ll not take pictures of the broken hot water heater. The whole thing is set up to fail, which is one of the reasons I haven’t failed for 24 years is because I won’t let my lenders in a crappy position. I don’t want them in a crappy position forever. I need their references and I need their kids, uncles and granddaughters. Whoever falls into money, I need them to recommend me.

What are your thoughts on where the market’s headed? There’s a lot of speculation on we’re at 2007, 2008 levels. Where do you think it’s going?

Honestly, if Trump gets reelected, we’re fine for however long he’s in, another four years past whatever he’s got left. If the Democratic Party won, we’re going into a recession in a very short period of time. Like him or don’t like him, there’s the optimism that he builds into this economy just like what I said when we were talking before the show. I had all this stuff going on and I see a post, I said, “Trump, I can’t get any help.” It’s no wonder the wages are going up.

For a good reason too.

Let’s get one thing straight, no matter who the president is, things can’t go up forever. There’s got to be a market adjustment and there’s more than being a market adjustment during the time period it’s there, but it won’t be a recession. It’ll be a correction. The last recession we had, a lot of people call that the depression. They classify that as depression. If you were able to survive that, then you survived short of a depression and some people did call it a depression. If your model held up, then you’re good. There are two models that I know hold up good in a recession. I hate to say it in a depression because I don’t know.

I wasn’t around in the ‘20s, so this may seem odd.

If you don't like dealing with banks, the answer to your investing problems is private money. Click To Tweet

I think we have checks and balances now on that.

It’s hard for me to say depression. If you have any hustle or will and desire, you should be able to do that. I can’t use depression because I have my grandmother who was born in the early ‘20s and she wrote and talked to us about taking the mattresses out to the front lawn and sweeping them and dusting them off with a stick. That’s a depression. I didn’t get a raise for a couple of years, that’s not a depression.

Do you know what they say the difference in a recession and a depression?

What’s that?

It’s a recession until it happens to you and then it’s the depression. Here are the strategies that work. Renting should always work because people got to have a place to live. Let’s face it, if people don’t need a place to live especially in humble quarters, then we’re picking up guns. We’re going somewhere and your money wasn’t worth anything anyways, with the possible exception of gold. The owner finance strategy works. When I was seller financing houses, rents would go up generally in the recession because the banks are closed and they’re not giving loans for anything and people are losing their jobs. Their consistency to qualify for a loan is down overall across the board. Everyone’s having to rent, so there’s pressure put on rents.

I established the price of my owner finance houses, which is the OFV, the Owner Finance Value. I establish that value with a formula that starts with market rents and I back into it. As the rents are going up in the recession, my owner finance houses are going up in the recession and the only reason it works was I didn’t need a bank to buy the house and my buyer didn’t need a bank to buy the house from me because I’m financing it for him. I’m bankless in this strategy and so is renting if you can solve the problem of how to acquire because you definitely have to acquire during the recession. That’s when it gets to the toughest. You better start cultivating your private money now before the storm hits because it’s too late.

I keep using this phrase, stacking cash, because people ask me what I’m doing right now. We’ve got one more property we’re set to close on. After that, we’re going to be done for a while.

You can’t stack enough cash.

You bring up a good point there where I’ve been thinking, “I’m going to stack my cash, our personal cash.” What I need to add to my strategy is to stack other people’s cash.

Before the recession, because it’s going to get scary in the recession, here’s the thing I talked about in that Private Money Changes Everything course. It gets easy to identify people and to talk to people about loaning new money in the recession because usually one of the signs of recession is that the stock market’s gone in the tanks. They’re pulling out, they’re scared and now you’re asking them to loan on a tangible asset. You either get paid or you get a house and this house would be worthy of the amount of money, you’re more than worthy of the amount of money that you’re loaning on this small multifamily place, whatever it should be. If they get it, it can produce an income. When you lose a stock certificate or that stock drops, there’s nothing you can do about it. In the housing business, there are a lot of things you can do to roll up your sleeves and change out some of your game. One of the things why I love raising money when the stock market has fallen is because I can pick out who to talk to easily. I walk in there, you’re going on an elevator. All you have to go is say, “Did you see that stock market today?”

I love the tactic.

Some of them dropped their head and go, “Yeah, I’m losing my ass.” I said, “I’m so glad I chose a different path. I chose to not ever do that again. I took control of my own future. You don’t have to live that way.” All of a sudden, you’ve got a coffee appointment.

Within the W2 world, I run into tons of folks who don’t understand real estate. They’re all focused on the stock market. I’ll ask them, “How are you doing in the stock market?” Everybody’s up and I feel like there are a lot of folks on that Titanic.

Somebody said, “I’m up 100%,” or whatever. I said, “You got out?” “No, I’m still in.” “You’re not up.”

That’s play money until you hit that.

You’ll be up when you get out and pay your time.

Back to your point about buying and holding units, buying and holding rental properties is somewhat recession-proof. We don’t focus on luxury rentals. We’re in that class B-minus, C-plus area and some C-minus. I’ve got a couple of days, I’m getting rid of those. I don’t want to be there anymore.

Finance your D’s and makes someone else go in and fix them up.

REIS 319 | Part Time Real Estate

Part Time Real Estate: Raising money for real estate during a recession is easier because people know they will get paid or they will get a house.

 

We’re under contract to sell them now anyway, but it’s a great idea. I don’t want to be there anymore. It was great to start out. Cashflow is still amazing, but I want to turn that cash flow into exponential cashflow with some different assets. These are some properties we thought we’d buy and hold forever because they’re in a D area. They’re not going to improve in value. They’re going to cashflow.

It got you going there.

They did. Those are good starter homes, not in the sense of a starter home neighborhood, but a starter home. Yet those class B and Class C properties, while the rents may stay the same or go up, if a recession does happen or even depression, then your tenants are going to change out a little bit. The guy who could afford $2,000 a month now can only afford $1,000 a month. He’s going to be our tenant now versus living in his own home.

Maybe or maybe not. Maybe the kids will move back in with mom. They’ll combine their income and they get to still live in a house and not under a bridge.

That’s an option too.

I used to buy houses on those first-time drive-by houses, where you buy a house and get your first drive by crappy.

I haven’t had that happen yet.

In my early days many years ago, I thought because I was poor, I had to buy cheap houses.

I’ll give you a war story. We talked about war stories. I’ll give you one from that. In my experience, I thought I had to buy cheap houses. I bought this thing in a tax deed auction for $7,000. I thought it was abandoned. I thought it was empty. I drive by the house. The electricity is on because it’s at nighttime. I can see the lights on and I’m like, “What the hell?” I finally talked to my lawyer and said, “I don’t want to walk up to this guy’s door because I’m not comfortable doing that. How do I get them to respond to something?” “Send him a certified letter.” He signed for the letter and said, “Contact me. I now own the property. I need to get you out or I need to get you under a lease.” I come to find out this guy didn’t own the property. The reason why it went to tax deed auction was that the owner of it was in prison. This guy had been squatting there for almost a decade because the other guy was in prison for that long or longer and he was stealing his mom’s disability checks to buy supplies to cook meth in the backyard.

I think I ran into that guy.

I very quickly got him out but on his way out, he destroyed the property to the point where we just bulldozered it over and put a mobile home on it. The silver lining, the story I tell myself to make me feel good about this purchase, is that there’s a lot of kids running up and down the street. It was that house. It was the worst house on the block so to speak. It is now cleaned up.

You did the community a favor.

I feel like I did. We’re still going to make a pretty good return on it when we sell. We hadn’t hit the cash register button yet, but we have a good tenant in there. She’s been great. He or she, I don’t know. Again, the property manager’s handling all that for me. It’s one of those things where I look back and knowing what I now know, I would have never done that deal. It might be why I got it for $7,000.

That’s why you got it for $7,000. I can’t tell you the number of deals I probably wouldn’t have done if I’d only known what I was going to go through, but the day I went through it and they work out, I muscled through it. We muscle through these kinds of things, people like you and me and we come on the other side and we’re okay. It makes you money now.?

They cash flow very well. It’s got some title issues because of the tax deed, but if we’re going to eventually sell it in a couple of years, we’ll make an extremely nice return on it.

I learned a thing with tenants before. It’s served me very well. This is a little nugget for the new people out there. When I inherited these houses or I would rent a house to somebody and then their boyfriend would end up living in the house, which I never knew about, the first thing I try to do is I get the information on him. I always try to get information on everybody. When I have a trouble tenant, I got some friends down to the police department and I run them. It’s unbelievable how many of them have warrants. When they live like that, they live like this because the reason is they’re not right up here. When they’re not right in your house, they’re probably not right out in public either. There is a good chance they have warrants and I always run them and if they have warrants, it’s really easy to get them out. I say, “You got warrants. I’m very good friends with a lot of people in the police department and they’re going to be here in 24 hours. If you’re not out of my house and if my ceiling fans and my stuff are not here, I will find you. If you leave my house alone, I’ll let you go about your way.”

I don’t know if you can do that in Florida. It falls under the property management piece that I’m not going to deal with.

I did a lot of things though that weren’t in the property code, I’m sure. I would take a baseball bat to the outside unit, with a window unit. I went over there one time. In my book, I wrote this story. I went over there at one time and I knocked on the door and said, “I’m here to fix your window unit.” He says, “What’s wrong with it? It’s fine.” I said, no, “It’s not running right.” I went and I beat the hell out of it and I shut it down. He goes, “What are you doing?” I said, “It works perfectly. It works just like you.” There’s got to be in balance.

Transparency is the way that relationships are born. Click To Tweet

I don’t know that’s legal in Florida either, but that’s an interesting tactic.

Sometimes you have enough. That’s why I have a property manager in between them and me, because if someone was probably going to get a baseball bat shoved at their keister and it was probably going to be me because I’m not that big and those guys were mean.

You may initially win, but the battle on that one would be long. I think you would lose.

They know the law better than most attorneys.

I had a professional tenant that finally got rid of in that class D property that we’re selling. It was nice.

How many units are you up to?

We’ll be up to 327.

You’re not messing around.

A little caveat to that, we don’t own all of those units. We’re limited partners in a couple of bigger multifamily deals. We get a piece of that pie, but I like throwing that number out there.

A lot of people walk around town saying, “I got 1,000 units,” and I find out, they own 10% of them.

I’ve never heard anybody say, “How do you do that?” A lot of people throw out these big numbers and there’s nothing behind that. Transparency is huge for me. In the Facebook group that I run and the masterminds I run, I’m an open book. It sounds like you are too. Transparency is the way that relationships are born.

The subtitle of my book is Failing Forward To Financial Freedom. I’ve fallen down so many times in this book, my nose should be flat. How did you do this? Listen to this backup. Here’s the history. When did you start, how many years has it been? Was your wife fully on board? How did you stumble into this?

I actively started in 2014. I think we passed our five-year anniversary.

What were you doing before?

I was working in a W2. It’s the same thing as I’m doing now. I’m just trying to figure out how to climb the corporate ladder and build wealth. Finally, a light bulb went off in my head.

What kind of industry?

Information technology. I work for a cybersecurity firm. I’m a direct sales coach.

Real estate is part-time. Does your wife work?

REIS 319 | Part Time Real Estate

Part Time Real Estate: Getting the wealth that you want to get requires having additional income streams like real estate investment.

 

She’s a stay-at-home mom, but she has her own little home decor side business.

She’s hardworking too. You’re both working. What got you into real estate? What was the turning point?

You’ve probably heard some people mention Rich Dad Poor Dad by Robert Kiyosaki. I stumbled upon that book when we were six months pregnant with our first son. That had a paradigm shift in the way I think about building wealth. It woke me up and said, “You’re never going to get to that wealth that you want to get without having these additional income streams.” Then we started focusing on real estate. We eventually landed on buy and hold and figured out what it means for property cashflow. We created our investing criteria. We adopted some. There were people who were successful before us that we learn from. It’s sticking to those. I told somebody, I had zero ideas that I would buy any properties this year, do zero transactions. You were talking about where the market is going. I was concerned where the market was going to go. Let’s not do anything. Here we are, we’ve sold two properties that equaled four doors and now we’re into these limited and we did get on it. It’s allowed us to go into these limited partnerships where we’re up.

Let’s talk about cash flow. It’s easy in your beginning days to deceive yourself on what your cash flow is.

When I talk to other folks, “How do you define cash flow? Let’s make sure we’re talking the same terminology.” Most people hit the hard costs, the maintenance and repairs, the property management fees, taxes, insurance, mortgage and all that good stuff. They typically forget vacancy and capital expenses. I go with the acronym TRIMVC. That covers everything. It’s easy for me to remember. What’s your TRIMVC? That’s taxes, repairs, insurance, mortgage, vacancy and capital expenses. If you do all that minus your rent, that’s your cash flow. I learned that lesson pretty hard.

I said we actively start investing in 2014. What I like to call as our false start in investing happened when I bought a property in 2006. I bought it, thought I was going to live in it and flip it after a couple of years, make this huge cash payment that you see on all these TV shows and it didn’t turn out to be the case. I had to hold onto it for about eight years, rented it out after we got it remodeled and I finally figured out, “How do I calculate this cash flow stuff?” Once I did it on that property that we bought in 2006, I realized I was losing $300 a month and I was renting at the top of the market. It’s one of the best neighborhoods there is in the city.

That was part of the problem too. It’s one of the best neighborhoods.

There is a sliding scale when it comes to asset class and cashflow. They typically go parallel. The higher asset class, the less cashflow you’re going to get, if any at all. It could be negative. If your asset class is Class D, you’re going to cash flow very well. I eventually learned that too. We tried to sell it like C-plus, B-minus areas where you typically get a little bit of both.

The typical learning stuff because one of the things that aggravates me about the buy and hold strategy is not the strategy itself, but the way the gurus present it. They always walk in the room, they turn on the light, they turn on the projector and the first thing out of their mouth was, “You’re bringing in $1,500 a month and your payment’s $1,000 so you’re making $6,000 a year in cashflow.” “You just negated.” First of all, as the landlord, you got every liability from the back fence to the front mailbox, anything, everything. You can write it however you want to, but at the end of the day, it’s still yours. People don’t take care of things the way you do. TRIMVC, list them out again.

Taxes, repairs, insurance, mortgage, vacancy and capital expenses.

Capital expense, is it improvements?

Capital expense is typically defined by your CPA of anything over $2,000 or $2,500, a new roof, air conditioner, that kind of thing.

What’s the difference in maintenance and capital improvements? You sound like you’re like me. You have to get hit in the head with a baseball bat before you’re like, “That’s why they say this.” You can tell me the burner is hot but I’m touching that.

People like you and me, we’ve got to learn on our own. It doesn’t matter how many times, we can’t do it. I’m going to push that button. I’m going to do it. I want to hit it to see what happens. You’re not alone.

Is your wife on board with you with all this or are you like, “I had to drag my wife into entrepreneurialism like a caveman by the back of her hair. She was kicking and screaming and wailing and crying the whole time and was petrified.”

She is on board. She’s a lot of times my voice of reason. As you said, we’ve got to push that button and we’ve got to grab that stove. I’ll grind on a situation for a couple of days. I love this about my wife, but it also frustrates me is I’ll grind an issue for a couple of days and then I’ll go finally give up and go talk to her and say, “I’m learning this issue. What do you think?” Within seconds, she gives me the most obvious answer that I need to implement and I’ll go do it and it works out perfect. She’s been on board from the very beginning. I think the difference between you and I is that I’m not looking to quit and go into real estate full-time. I don’t think I’ll ever do that. I’ll still continue to earn, invest, repeat, which is our motto at W2 Capitalist. I like what I do. I get to coach a group of sales folks and see them be successful, but also I don’t have enough of that entrepreneurial spirit to take that leap by myself, at least not yet. I get asked all the time.

You don’t have enough of the entrepreneurial spirit or you don’t have enough cash flow. If you’re all paid off on all your accounts, you’d be jumping on board. There’s a lot to be said for it. Most people I know when they get enough money coming in or enough cash flow, they get tired of being told what to wear, when to show up, when they can go on vacation, when they watch their kid’s basketball games and how long they can go on vacation.

I think that goes to the company you work for and the position I’m in. I’m at that point where I have a lot of flexibility in that and that helps with that. If that ever changes, they come in and new management comes in and says, “No, this is not how we’re going to operate anymore.” I think the trigger for me is going to be when that happens because we’re almost there with our cashflow. If we wanted to make some contingencies, we could be done with the W2 world, but we don’t. My ultimate goal, and I stole this from somebody, is to build 300 years of generational wealth for my family. I am way far away from that goal. I’ve got a lot of work to do. I think having the W2 job and still stacking my cash, paying attention to the market, I’m going to get there but I’m going to be working for a long time.

Some people can tell if a burner is hot. Others have to touch it first. Click To Tweet

You like what you do. There are worse things. Do you have a college degree?

I do.

Where did you graduate from?

Jacksonville State University.

How old are you?

I am 40.

I didn’t find my butt with both hands until I was 34 and then it was about 36 before I got up to speed.

It’s the same here. There’s something about that age group that something finally clicks.

I can tell you what it is, but I’m not sure.

You stop thinking with one head and start thinking with the other. Is that it?

I got married when I was 30. I settled down and I found myself with a lot of time on my hands. I concentrated on how to be successful for once. It’s amazing how not in control we are sometimes based on where we are in our cycle of life. I see a lot of kids now in their twenties buying their first houses in the early twenties and even some in their teens now and then. There are a lot of people under 25 doing some pretty cool stuff. With the internet and the education that’s offered, I’m not a big fan of college myself, but I came from that camp where I couldn’t be a fan of it or lament it. I just needed to go on.

I think one of the positives for those of you that are not college material or not going to make it through college for whatever reason like finances, is it’s not the end-all. It could be one of the greatest blessings of my life. I didn’t get four more years of that brainwashing or six years depending on if you want to get your Masters, whatever. I made so little money that it was pretty easy to get independent. I had to find something because I replaced $15 a hour job, it wasn’t the end of the world. The greatest thing was once I got self-employed and I figured out how to make $15 an hour, which meant I could quit a job, then when I figured out how to turn $15 into $20, I was 100% recipient of the increase. When I went from $20 to $50 an hour, I was a 100% recipient of that. At one point, I’m worth $800 an hour.

I will not push college on my kids and to be fair, my parents didn’t push it on me either. Some of the best advice that I did not take from my dad is in high school. He’s now a retired fireman, but most firemen work 24, all 48. The other 48 they do some trade. He had connections to carpenters, plumbers and electricians. His theory for me or what he wanted me to do was every summer when I was in high school, one summer I’d go to work for an electrician, one summer I’d go work for a plumber and one summer I’d go work for a carpenter. If I wouldn’t have done that, I won’t have been a lot further along in my investing career because I would know those trades, I would understand what it takes to get things done. That’s the best that I’d never listened to. I never grasped.

There’s a book title, The Best Advice I Never Took.

That’s it. He focused on that. I didn’t focus on going to college but for some reason, I got in my head that I needed to do it. I started applying for all these schools my senior year in high school and they’re like, “We see you’re applying, who’s going to pay for this college?” I boldly and confidently looked at them and I said, “We all are.” They cracked up and laughed their head off and they said, “Your brother found a way to pay for his college. You got to do the same thing.” That was a wake-up call for me. It trained me how to learn, is it worth the investment? It is an investment and as you said, it is brainwashing. There are some things in there I don’t understand why they don’t teach in college, like how to build wealth, how to balance a freaking checkbook. Let’s talk about that.

How to mitigate your taxes? We’re going to pay them the rest of our life with a course on how to mitigate your taxes and W2 versus self-employed and the write-off game. Where is that?

If you look at the school systems, most of them get government funding so they’re not going to teach you how to not pay or get funding to the schools.

The more money an entrepreneur puts in his pocket, the more businesses he opens and the more product he moves up and down the street. Every time that stuff moves, there’s a tax paid. There’s Friedman, he won the Pulitzer Prize in 1979 or something on the economy. The model was based on never taxing the business owner. Never tax that man because he is driving our economy. He is causing more taxation than he’ll ever be able to pay in his lifetime. He won the Pulitzer Prize on the economy. We didn’t hire him and he went to Brazil and made them independent.

REIS 319 | Part Time Real Estate

Part Time Real Estate: Not getting into college is not the end of the world; it could be one of your greatest blessings.

 

This has been Jay Helms. I want you to go to REInvestorSummit.com/helms and get your free ten-step guide to buying and holding a small multifamily rental property. This guy has over 300 units. He did it in five years. He’s over in Florida. It’s not the least expensive place in the world to do this. In fact, he does it all over the place because of that probably. Check out what he has to say. His podcast is W2 Capitalist. Will you have me on your podcast?

Absolutely. Mitch, I’ve enjoyed the conversation. You’ve got a wealth of knowledge that I want to tap into. I want to get in more into the private money lending and talk more about your course. Maybe I can get a freebie out of you.

Thank you for stopping by to get you some Jay Helms talk about buy and hold. I hope you are achieving your goals. Please check out TaxFreeFuture.com. If you do not have a self-directed or tax-deferred or non-taxable retirement income, then you’ve got to go to the website and find out what your financial advisors are not telling you. There’s a reason why they’re not telling you. I’m going to tell you what it is and why they’re not telling you. Take control of your own financial future. TaxFreeFuuture.com is where you get tax-deferred and tax-free retirement plans and with checkbook control even.

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About Jay Helms

REIS 319 | Part Time Real EstateJays recently launched podcast (W2 Capitalist) was ranked #1 on iTunes New & Noteworthy for Business/Investing which is where he provides his insight for building a buy and hold real estate portfolio