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BiggerPockets Money Podcast 156: The Conservative Money Cool Kid: Buying 20+ Houses in Cash with Richard Carey from Rich On Money

BiggerPockets Money Podcast 156: The Conservative Money Cool Kid: Buying 20+ Houses in Cash with Richard Carey from Rich On Money

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Most real estate investors get into real estate to get rich quick. If you’re looking to make a million dollars within your first year of real estate, this is the wrong podcast! But, if you’re looking to build a sustainable portfolio of cash flowing rentals while reaching financial independence in a very lucrative position, this is the episode for you!

Richard Carey, AKA the “Conservative Money Cool Kid” started out in the military, not knowing that real estate was the place where he would create his wealth. He started with a duplex and slowly began building his real estate empire, even while overseas. He even took a 10 year break from real estate, and was still able to grow his position to an impressive level!

Real estate wasn’t the only way that Richard was investing. He was maxing out his IRAs and employee retirement accounts, investing in index funds and watching them grow more and more as he upped his contributions. Richard is a fantastic example of why you want to start investing as early as possible.

While most real estate investors champion loans and leveraging as much as possible, Richard thinks differently. He finds a position of strength by not overleveraging, owning rentals outright, and having a solid safety net to depend on. Richard now sits in a great position, early in life, with a lot ahead of him!

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Read the Transcript Here

Mindy:
Welcome to the Bigger Pockets Money Podcast show number 156, where we interview Rich Carey from Rich on Money and talk about financial independence through long distance real estate investing while being deployed overseas.

Rich:
I was always learning. I was always checking real estate prices. I was always talking to investors. Unfortunately, I didn’t know about Bigger Pockets. I didn’t know about podcasts. I didn’t know about any of these internet sites. I read a few books. I was just learning the old-fashioned way, I guess, but you just have this goal of, “I’m going to make real estate work. This doesn’t seem to work. The numbers don’t look great right now, but I’m going to find a way to make this work.”

Mindy:
Hello, hello, hello. My name is Mindy Jensen, and with me as always is my newly married cohost, Scott Trench.

Scott:
Wow! Way to bring me in this week.

Mindy:
Oh, you have a ring. Oh, I love it. I love it. Scott and I are here to make financial independence less scary, less just for somebody else, and show you that by following the proven steps, you can put yourself on the road to early financial freedom and get money out of the way so you can lead your best life.

Scott:
That’s right. Whether you want to retire early and travel the world, go and to make big time investments in assets like real estate or start your own business from a position of financial strength, we’ll help you build a position capable of launching yourself towards those dreams.

Mindy:
Scott, I’m so excited to bring in Rich Carey today because he has a really great story of cautiously investing from a position of confidence and a position of financial strength. He didn’t get some wild hair and decide that he needs to be a real estate investor with 100 units today. He slowly started investing in real estate and then as he had success, he did it again and again and again and again. The overall message of this episode is don’t just jump in with both feet and wildly invest and hope it works out. Be confident in your decisions and execute wisely.

Scott:
Yeah. I think what I admire most about Rich is that he made it so easy, right? I mean, it was discipline, and it was frugality, and it was building a rock solid financial position the slow way, taking a few more years than maybe he needed to get there, but completely having control over every aspect of his financial position, having a monster surplus, and being able to really do every once now a 20-year career. He’s done, and he’s got complete control. So, that’s what I’m excited to share with you today and excited to bring him in.

Mindy:
Rich Carey from Rich on Money, welcome to the Bigger Pockets Money Podcast. I’m so excited to talk to you again. By again, I mean, I was the fill-in cohost on the Bigger Pockets Real Estate Podcast, where you first shared your story back on episode 268. So, I’m super excited to see what you’ve done since then in that time. Sounds like you’ve been taking a lot of time off and doing nothing, right?

Rich:
Nah. Well, I mean, in a sense, yes. I have a lot more free time, but I certainly stayed busy since retirement a few months ago.

Mindy:
So, when we talked to you on episode 268, I think you had either 12 or 20 properties.

Rich:
I had 20 properties that were paid off. Yup.

Mindy:
Okay. 20 properties that you owned free and clear, no mortgage.

Rich:
That’s right. Yup.

Mindy:
What were you doing to facilitate all of these purchases because that’s a lot of money?

Rich:
I think it’s perfect for this podcast and I’m excited to be on this podcast. One thing about my story that I think is unique from a lot of other real estate investors is that I focus on buying paid off properties, but the other thing, too, is that the reason I was able to do that, it wasn’t so much about clever financing, and no money down, and using my credit cards to buy houses. It was more about saving and investing smartly from an early age and then right about the time that I … In 2013 when I’ve been in the military for 13 years, I had a good chunk of change in the bank and I had a paid off home, and that’s when I started buying houses for cash. So, that’s the way that I did it as opposed to maybe a lot of other stories that you hear about something like that.

Scott:
What was your financial situation? How long had you been in the military in 2013?

Rich:
So, I joined the military in 2000, and did a 20-year career. I’m retired August 1st of 2020. So, at that point, it had been 13 years in the military with most of it being overseas.

Scott:
Awesome. Can you walk us through what your journey with money look like over those first 13 years? How did you get to that point where you had enough cash and a paid off home?

Rich:
Right. Yeah. So, I think I was always … To start off, I’ll say that I was early on in my career I’d been reading Dave Ramsey, and I was a fan of him, at least in the sense of getting out of debt and paying off your primary residence if possible. I got married also in 2000. My wife is also very frugal and good with money. So, that was a good start. Again, a lot of times, that’s the difficult thing is when spouse isn’t quite onboard with the whole frugality thing, and that’s not the problem for us.

Scott:
The old cashflow negative spouse, right?

Rich:
Yeah. Exactly. So, I think in my case, it was maxing Roth IRA or maxing IRA and maxing out savings each month since about 1999 with my wife’s help. We also paid off my $32,000 in student debt. We did that in about a year and a half with both of us doing extra jobs and hitting it hard.

Rich:
Another thing that we did, we pretty much put our extra money into S&P 500 Index Fund, whether that be in IRA or just in a normal brokerage account. Another thing that we did, though, was paid off my primary residence. I bought a townhouse in 2003 in Alexandria, Virginia, which is near D.C. We hit that off in seven years. So, that was a start for me.

Rich:
Another thing that I did while overseas was I flipped houses with a partner. I flipped about eight houses. Then we get to 2013, I have a paid off primary residences in Alexandria, Virginia. I have some cash, I’m investing in flipping houses, and I realized that that was an amazing market for rental properties, certainly compared to my Alexandria, Virginia townhouse, which actually didn’t cashflow very well.

Rich:
So, I bought six houses while I was in Montgomery, Alabama, and I was only there for 10 months. Moved away, went to, let’s see, I went to Germany and Korea for the next five years, and over the next I’d say two or three years, I went from six houses to 20 houses, but I did that all from overseas. That’s how I got to where I am now. Eventually, I sold that primary residence, took all the cash, and used that to continue purchasing houses in Montgomery. So, hopefully, that’s a decent summary.

Mindy:
I have so many questions. Okay. Starting back at the beginning, you said you have a frugal spouse. Did you and your wife talk about money before you got married or did you just know because she was as frugal as you were?

Rich:
Well, so here’s an example of how we talked about money. So, we had been dating for I think just maybe two or three months, and she asked me how much money I had in the student loans. I did not like this question because that didn’t matter. I would just pay it back when I was rich in a few years. I didn’t know and I didn’t want to find out.

Rich:
She said, “Well, you need to find out.”

Rich:
I was thinking, “Oh, jeez! This is not going to be fun.”

Rich:
I literally had no idea how much I had in student loans. So, I had to call four or five different phone numbers. I think this was even before this stuff was easily accessible on the internet. Hate to date myself. So, I finally figured out how much it was. I told her it was $32,000, and then she literally broke down in tears. I mean, we’re just dating, right?

Rich:
So, she said, “We’ve got to pay that debt off.”

Rich:
I’m like, “What? How would we pay that off?”

Rich:
That’s exactly what we did once we got married. We just knocked that debt out. So, I guess in that sense, yes, we had some money talks. That’s the way.

Mindy:
I love your wife. Okay. Moving on through your story, you said that you took extra jobs to pay off that $32,000 in student loans. You were in the military at the time.

Rich:
So, at the time, I was just finishing up college. So, I was just about to join the military in my last year of college. She was already graduated a year ahead of me, and she was working full-time.

Scott:
When it comes to the military, my understanding is that it’s possible to have the military fund a college education if you’re intending to go through there. Did you just go to college and then decide afterwards?

Rich:
Actually, interesting, in my case, I had a full scholarship. This is what makes sad that I had 32,000 in debt because I had a full scholarship, and I was even an RA in the dorm, so I lived for free, but I just kept borrowing money whenever I could. Honestly, it was just to keep up with my friends who were going out and traveling and having fun all the time.

Rich:
To answer your question, I had a scholarship. A lot of times when you’re in the military as an enlisted member or an officer, there’s the Montgomery GI Bill. That usually funds your school either while you’re in the military or once you separate from the military.

Scott:
Okay. Got it. Thank you for that context. I don’t know. It’s far back in your journey there, but it was interesting. It’s always interesting to see what position people exit college with and enter the workforce in.

Mindy:
You said you flipped houses long distance with a partner.

Rich:
Yeah. Right.

Mindy:
So, I flip houses. I live in them. It’s the shortest distance possible for my flips.

Rich:
That’s way better.

Mindy:
Well, I would get the heebie-jeebies leaving so much to somebody else because I’m a bit of a control freak. I want to know how you found the partner first of all because there’s a lot of people on the Bigger Pockets forums that are talking about, “I want to find a partner,” or “I had a partner and it was a disaster,” or “I want to flip long distance because it’s so expensive by my house.” There’s a lot of other people who have done it not successfully as it seems that you have and are warning them against it. I am more on that side like, “Hey, you need to really trust your partner. You need to really know what you’re doing and have solid context in place in the market that you’re flipping before you start thinking about flipping long distance.”

Mindy:
Clearly, you can do it. It’s not just Rich Carey that’s done long distance flipping. There are other people who have done it, too, but I’m wondering how you found your partner and did you know him forever, him or her. Sorry, I shouldn’t be sexist.

Rich:
Right. Yeah. So, it’s a guy in this case. He was my neighbor when I lived in Alexandria, Virginia, so that townhouse that I bought in 2003. He was also a real estate agent. Once I moved away, I kept coming back to D.C. We come all the time to headquarters to do business trips. Every time I came back, I’d go out and look at houses with him, and consider other investments that I could do.

Rich:
I couldn’t find anything because at that time prices were just skyrocketing. This is 2005, 2006, 2007. He said, “I flip houses and I have partners, and this is what I suggest we could do.”

Rich:
At this point, I had known him for a long time. I knew his reputation in our neighborhood. He was a friend. I knew that he had worked for Habitat for Humanity in New York City before, and he built a bunch of houses. I knew that he understand contracting very well. He’d been acting as my property manager, defacto property manager, just when I need something important handled.

Rich:
So, I mean, I was scared to death when I did this and I thought it would probably be the worst decision of my life, which is a feeling I’ve had a lot in my real estate journey. I mean, we flipped eight houses, and I think the first five made between 15,000 and 25,000 each. Then I think I lost 15,000 and then I think I maybe made five, and then I lost 10 again.

Rich:
I was like, “I’m way ahead. This makes me so nervous. I’m glad it’s working out, but this can’t work forever, and I have no control over the process.”

Rich:
Now, he did not screw me over. He did not take advantage of me. I believe he easily could have in a number of ways. It’s not a strategy that’s going to work forever. It happened to make me some money, but I wouldn’t recommend it as a way to make a living.

Mindy:
I like that you say that because there are a lot of strategies that did work or will work for a short amount of time, and then now it’s time to move on and find something else. I like that you were scared. I mean, I don’t like that. I would have loved for you to be very confident and make confident decisions, but it can be really scary to do this. Did you do one flip with him first or did you do more than one flip at the same time?

Rich:
Yeah, it’s just one at a time. The cool thing was he owned houses in this neighborhood. I owned a house in this neighborhood. We didn’t know it yet, but the real estate market was crashing, and houses were abandoned and just in bad shape. They were like the worst houses in the neighborhood. So, we kept taking houses in our own neighborhood and making them from the worst property to the best, raising the value, raising all the values in our neighborhood by fixing up these houses. So, we’re doing both of ourselves and our community a favor by flipping these houses. I just liked that, and I liked that that was his attitude toward it as well.

Mindy:
Okay. So, you’re not flipping long distance at some random neighborhood that you don’t know. You’re flipping a neighborhood that you know with somebody that you know who’s experienced. A lot of people listen to this podcast and maybe real estate isn’t their most favorite thing, but real estate can make you a lot of money. Real estate can also lose you a lot of money. You make calculated decisions and you don’t just jump in with both feet with some random person you met off the internet-

Rich:
That’s for sure.

Mindy:
… who claims to be some expert. Do your research and take your time and it’s so much better to have missed a great deal than to buy a deal that you’re not sure about and it turns into a dump. Sorry, I almost said a bad word.

Rich:
Yeah. I think another thing that I would throw out to everybody is that, and this might be clear already, but I’m different than most typical, I guess, real estate investors that have been on maybe the Bigger Pockets Podcast or the ones that are just in forums bragging about, how many houses they bought with no money down. I’m a conservative real estate investor. I would certainly say that I think it’s smart, especially if you’re a beginner and it’s you’re first property, I don’t think that’s the time to go with seller financing. I don’t think that’s the time to … I see some cheering going on in the background. I don’t think that’s the time to borrow money from your credit cards and buy a house or to raid your grandmother’s IRA.

Mindy:
Yes.

Rich:
I think that these are ways to expand your portfolio. Once you have experience, then you can manage this risk. That is no way to start off. I mean, it might seem boring to a lot of people and I’m not going to sell a lot of books, but I think that you save up 20%, buy a property, make sure it’s doing well, save up another 20% and do it again. I’m certainly not against leverage, but I’m all for responsible leverage.

Scott:
I love it. I couldn’t agree more. I think this is the point of the Bigger Pockets Money shows real existence here is because we share that philosophy and we feel like, “Hey, if you’re going to invest in real estate or anything else for that matter, even a longterm index fund investment, you should do so from a position of financial strength where your basis are covered, and you can afford to invest with that very longterm outlook or for to never touch the investment. You’re not depended on your investment. It’s just an accelerator to your position and moves you along towards your goals there. So, I could not agree more with that. Sorry. That was mostly my chime in with that.

Scott:
I do want to know going back to the position that you built up over those first 13 years. It sounds to me what I’m hearing is you had a disciplined household spending budget. You had a military income, which we all know is probably not sky high, but there’s some advantages to it, and that there’s a housing allowance, and those types of things. You had flipping income from these properties. I know that you paid, you basically had a philosophy of avoiding debt and paying off your house, for example. Two additional questions on that. Was your wife working during this period?

Rich:
Hardly at all. No. I think she worked in maybe 2001 and she tried to work at the beginning, but she really never had an income. She had an income in D.C. for two years, and really, that’s it. For the rest of the time, I was in the military. She did not work.

Scott:
Okay. Great. Then the second question here is what was your defense or discipline? What does frugal mean to you? What was your lifestyle while you were accumulating this cash?

Rich:
Right. Well, again, I think, and people are doing the math on their heads and they’re saying, “Well, how did he buy all these properties?” and I want to help them understand. My income in the military … Now, you can be enlisted in the military or you can be an officer. So, I was an officer in the military. If you’re curious, you can just look those charts up and see what our pay was, pretty much like my first year through my 20th year. It’s no secret. That’s where all my money came from.

Rich:
Frugal to me means we paid cash for our cars, right? We vacationed nearby. We didn’t buy expensive furniture. We bought super cheap, used furniture all the time. We didn’t buy fancy clothes. My wife has no jewelry. We didn’t go out to eat. We didn’t go out and drink and party, but everybody else did, but I was throwing all this money in the bank and throwing it into index funds, and putting it into real estate, and it was growing.

Rich:
No, I did not get rich in a year or two. I hadn’t gotten anywhere by 2003. By 2013, I was surprised to find the position I was in. Once I was in Montgomery, Alabama and I’m like, “Wow! These houses here are absurdly cheap, and they’re getting really high rents. This is way better than what I’m doing in Alexandria.”

Rich:
I was surprised at the financial position I was in to pay cash for these properties. Now, I could have leveraged these properties, and maybe controlled a lot more, but to be honest, again, I was scared to death. I was in this new city and I hadn’t invested in I guess you could say C properties. They’re not scary properties, but they’re certainly town homes in Alexandria, Virginia.

Rich:
I thought maybe I’d buy a few properties and the place would just get trashed and I’d go bankrupt from this whole thing. I bought six and it went awesome. So, once I left, I just bought more as fast as I could and as prices went up.

Scott:
So, in just 13 short years, you became an overnight success with your financial position-

Rich:
Yes. Exactly. You’re right.

Scott:
… with that discipline. Love it. Okay. So, was there a trigger for this or was it really just like you’d been doing some stuff on the side over the years in real estate and thought the numbers look really good here or was there some catalyst for you wanting to move towards a bigger financial goal?

Rich:
I tried. I’ve been trying stuff ever since 2003. The reason I waited till 2003 to buy was because I was in Guam and we had earthquakes and typhoons all the time. So, I just didn’t want to buy a house there.

Rich:
So, 2003, I’m in the States, I buy a house. All I was trying to do ever since 2003 was find more ways to invest. I actually tried to flip. I flipped new construction and it didn’t really go that great. I tried to buy more houses and it was too expensive. I almost bought a house in Monterey, California in 2006, 900,000 for a two-bedroom, one bath, and I’m really glad I didn’t do that.

Rich:
When I got to Montgomery, Alabama in 2013, I ran into another military member on the first day of class. I was there for a military school. He introduced himself to everybody, “Hi. My name is so and so.” I had just gotten there, but he’d been living there for two years. “I’ve been living here in Montgomery for two years, and I’ve been investing in real estate since I got here. At this rate, I’ll be rich when I retire.” He just said that.

Rich:
Nobody in the class paid any attention to it. I was like, “What did that guy just say?” I didn’t hear another word anybody said for the next hour, and then we were on break and I just ran over to him. I started peppering him with questions. I was like, “Okay. Wait a second. How many properties do you have? How much do they rent for? What do you buy them for? What about management?”

Rich:
He answered all of them and I said, “Can you help me do this? I want to do this.”

Rich:
He’s like, “Sure.”

Rich:
So, that is how I went from no idea what to do next in real estate to the plan that I have now. To be honest, I’ve always been looking for something better ever since then. I have yet to find it.

Scott:
I have two additional quick questions here. One is a deeper tangent here. You said you’ve been trying to figure something out since 2003. So, for 10 years, you’re attempting to try new tactics to build your wealth effectively. It sounds like this was a pretty deep interest for you during that period. Is that right?

Rich:
It was. Yup. It was.

Scott:
What would you say to somebody who’s listening here, who’s going through the same thing right now? Because that seems like a long time to really explore and invest and I imagine it sounds like frustrating or there’s something eyeopening, there’s something about this that was different than everything else. Can you walk us through what that was, if you have anything to say on that?

Rich:
Yeah. Well, I think for one thing, I think part of … I mean, I’m sure somebody could have found a way to make a lot of money between 2008 and 2013, but it was a difficult time in real estate. There was a huge dip in the market and it lasted a while, and people weren’t exactly sure where things were going to go after that.

Rich:
I was always learning. I was always checking real estate prices. I was always talking to investors. Unfortunately, I didn’t know about Bigger Pockets. I didn’t know about podcasts. I didn’t know any of these internet sites. I read a few books. I was just learning the old-fashioned way, I guess, but you just have this goal of, “I’m going to make real estate work. This doesn’t seem to work. The numbers don’t look great right now, but I’m going to find a way to make this work.”

Rich:
Another thing that I had in the back of my mind is, and it’s exactly what Scott, what you already said. When the time comes, I want to make sure that I’m in a financial position of strength so that I’m able to tackle whatever is front of me without having to hustle or do something risky to make it happen.

Rich:
So, I think for those that feel like this fear of missing out like, “Everybody around me is buying 30 units and 60 units every two or three weeks, and I haven’t bought anything yet,” I say pay off your debt. Find a way to increase your income. Cut your expenses, and have a goal of being in a financial position of strength and just keep trying to find what’s going to work for you next, but don’t be upset if you don’t buy something in the next three months, six months or a year.

Rich:
For me, I waited quite a long time and I’m happy I did. I’m glad I didn’t double down on the idea of buying two bedroom, one bath in Monterey, California for $900,000, which, by the way, went down about 35% a year later.

Scott:
There’s always somebody getting richer way faster than you right up until they’re getting poorer way faster than you, right? All right. Last question on this state or this moment in time where you changed into this Montgomery real estate investing path. Time. I know that the military offers both advantages and disadvantages when it comes to time being able to allocate to side hustles. Some people are assigned to duty stations or deployed even, and there’s periods of intense activity and inactivity. How is your situation setting you up for success with how you managed your time and putting that into real estate?

Rich:
I think for me one of the keys was while I was in Montgomery, Alabama, and I think I’m setting myself up for success, but I didn’t really realize what I was doing, but I had a property management company when I was in Montgomery, Alabama because I figured I’ll probably need one when I moved away, and I was only going to be there for 10 months. In my mind it was like, “Well, I can test drive this property manager.” I had fired property managers before not in Montgomery, but in other cities or in Alexandria. So, I was like, “I want to make sure I trust these people, and I want to make sure that I also have other people like plumbers, and roofers, and electricians. I wanted to have all these important pieces in place, real estate agent that I trusted, basically boots on the ground once I was gone so that I can continue doing things.”

Rich:
Why do I bring that all up? I think that’s a lot of part of how I did this all on very little time. So, I had a trusted team in place, and I understood the area in Montgomery, Alabama. The neighborhood that I was investing in very well are neighborhoods. Once I was overseas, it was just a matter of combing through properties on the MLS or however else we could find them or sending letters, and making offers on houses and buying them.

Rich:
At that time, I was turning them over to my property management company to get them remodeled even if they were in really bad shape. My property management company was managing not just the make ready, but if it needed extensive work because it was a distressed property. I think that might be a rare thing to use a property management company for something like that, but I trusted these people. I knew that they had my best interest at heart. I knew that they were trying to keep my expenses low. So, that was working for me.

Rich:
To be quite honest, once we had all these pieces in place from overseas, this was very easy to do with emails and texts and Skype. It just didn’t take a lot of time. It really wasn’t that hard. It was just a matter of … Of course, I waited 13 years to get to the point where I had found something that was great, but it just didn’t take a lot of time. I was able to do it on weekends and at night. To be quite honest, my wife who didn’t work at the time, she sat home all day and combed through Zillow and MLS and made lists of things that I was supposed to make offers on. So, she was obviously a huge part of this success that we’ve had.

Mindy:
Okay. Let’s talk actual numbers. You said a couple of things. You said you bought six and it worked out, so you bought more even as prices went up.

Rich:
Yup.

Mindy:
Then you continued on and said there’s this fear of missing out and people just want to buy anything, and you’re like, “No, no, don’t do that.” How did you buy six? Was it just six all at once or did you buy one and then another one, and then another one?

Rich:
Yeah. So, I bought one, right? I bought my first one. It was really cheap. It was for I think $30,000, right? $30,000 something that rented for 750 a month, but it needs some work. Since I didn’t know what I was doing, I spent about 15,000 rehabbing it, and I probably could have done it for about 5,000. A lot of bad things happened while I was getting this property ready. To be honest, again, I thought it was the worst mistake of my life and I thought that I was going to go bankrupt because of this thing.

Rich:
I had a lot of issues. I mean, the copper got stolen out of the house when it was vacant. Another thing that happened was after I bought it, there was a huge pile of trash in the middle of the floor in one of the rooms. When I cleared the trash, there was a huge hump in the floor because something was growing up through the ground and pushing the middle of the room up. I guess my home inspector hadn’t been very thorough and neither had I.

Rich:
So, just dealing with these really random scary things when I really had no experience with stuff like this, I just had no contractor experience. Anyway, I mean, I did it. So, I bought that house. My wife said, “Well, I guess that was difficult. We probably won’t do that anymore.”

Rich:
I said, “Well, what are you talking about? I want to buy two more right now.”

Rich:
So, I just kept going. I’m making offers all the time. I think I had two accept my contract on the same day. One of them was a real home run in terms of price. Then I just went one by one, then four, then five, then six. If I had to give an average, I’m probably buying on average at this time average of 45,000 but getting about 800 in rent. So, the numbers looked really good back then.

Mindy:
Yeah. Those numbers look really good.

Rich:
They do, yeah.

Mindy:
The 1% rule for those of you listening who aren’t into real estate yet, the 1% means that you buy a house and you rent it out for 1% of the cost of … The monthly rent will be 1% of the cost of the house. So, this $45,000 house that he’s buying should have rented for $450 a month, and that’s a good rule of thumb. It’s not an absolute rule. It’s a rule of thumb. So, he’s getting $800 on these houses that according to the 1% rule are $450, which means he’s almost getting a 2% rule. For context, I live in the Denver area and I’m seeing 0.5, maybe 0.6 if I’m super lucky for rents out here. So, Rich is doing okay.

Scott:
I do want to point out that, well, those are great numbers. Just if you’re listening, this rule is not a fixed thing here because I asked in Denver and if you take my property, the duplex that I own, which is worth $450,000 and you plop it into Memphis, Tennessee or Montgomery, Alabama, same structure is worth considerably less because of the location, right? So, let’s call it, I don’t know. I don’t know what, but maybe $120,000 in Montgomery, Alabama. I’m making that up.

Scott:
The capex is going to be very similar in price. The utilities are going to be very similar in price, those types of things. So, the rent, the cashflow doesn’t exactly correlate is what I’m trying to say with that. I can still cashflow in Denver on a 0.6% or 0.7% property, and you may not be able to cashflow a 1.5% property in Montgomery, Alabama because of those things. $700 less $700 in expenses is zero. 2,000 in rent less 700 in expenses is 1,300 bucks. So, there’s a give and take with this stuff just if you’re listening to understand about these rules of thumb in rents.

Rich:
I think that’s absolutely true. Another thing with the 1% rule is in the places where you can get the 1% rule now or maybe back when I was buying, if you could get the 2% rule, what you’re dealing with is super high turnover. You’re also dealing with crime, and you’re dealing with worst tenants, usually. So, you’ve got to consider quality of your tenants, I guess, and the possibility of how long they’ll be staying in deciding how important the 1$ rule will be to you.

Rich:
I think that it’s a good starting point if you’re just looking at a neighborhood and being like, “Wait. How much does it cost? How much does it rent for?” It gives you an idea if you got a chance. It also allows you to maybe be able to compare investments to each other at first.

Scott:
That’s right.

Mindy:
Yeah. It’s a great rule of thumb. So, you said something that I found very interesting. You said, “I continue to buy more even as prices went up.” I am a real estate agent in Colorado and I am seeing prices just soar because we have super low interest rates, and there’s no inventory and all the things. People are starting, well, not starting, people have been asking for years now, “Oh, the market is going to crash. I should wait until it crashes,” and then the market is like, “See you. I’m going to keep going.” I love that you continued to buy even as prices went up.

Rich:
Yeah. Well, I mean, I think you have to have an idea in your head of, “I’m going to keep buying until this is the cashflow that I’m going to be able to get.” I just knew that’s going to eventually happen. I mean, it’s just commonsense because both of you hear these numbers and you’re like, “Yeah, that’s awesome. I’d do that.” Well, that’s what everybody realizes when they’re coming in to these neighborhoods. Pretty soon, there’s an equilibrium or the prices get driven up enough, where you’re not getting those deals anymore.

Rich:
So, I just had this idea of, “Gosh! We’re making a lot of money here, but we better lock some more of these good properties down, and, yeah, okay, now I’m paying 50,000 for them. Okay. Now I’m paying 55. All right. Now I’m paying 60.” Actually, once they were getting over, I think I might have paid 62,000 for one. It’s like, “I don’t know.” I was at 20 properties. “Now I need to pause and probably wait.”

Rich:
I think that there was a two or three-year timeframe, maybe a two-year timeframe where I bought nothing. I kept looking, but I’m just like, “Gosh! It’s tough to make the numbers work now.”

Rich:
So, I made that decision, and then we may ended up talking about this, but I had that long pause. Actually, it was before retirement, had that long pause, pandemic hits, and then all of a sudden, I went out and bought a bunch of stuff, which obviously is probably a decision worth explaining to everybody.

Scott:
Well, let’s talk about that. What was your plan? 20 years is a big milestone in the military. What were you backing into, basically, between 2013 and 2020 in terms of your plan about your life and your financial goals?

Rich:
Right. Well, I mean, I think I always had this idea of … I grew up in a family … I can’t say I was poor, but we weren’t very well-off. My family was on welfare at times. They lived and still do live paycheck to paycheck. I was always really bothered by that. It gave me a sense of insecurity. I had that insecurity the whole time I was in the military.

Rich:
I wanted the 20-year retirement, but I saw people around me sometimes being pushed out the door before they hit 20 years and not able to get that retirement. I saw it happen to people at the 15 or 16-year point, and that made me nervous.

Rich:
So, I had this idea from very early on that I’m going to be financially independent even if after 20 years, even if the military finds a way to not give me a pension or even if politicians decide not to give military members pensions anymore, which probably wouldn’t happen, but I wanted that comfort.

Rich:
Then also knowing and, by the way, if I get that pension, then I’m just sitting very pretty, very, very comfortable. It’s extra money. It’s travel money. So, that’s the idea that I had in my head.

Scott:
Love it. I think that’s a perfect outlook on this stuff, and I imagine that you’re probably sitting reasonably pretty right now having taken that outlook. So, it looks like things are all coming together in 2020 for you. Pandemic hits. Walk us through what that was like for you and your decisions leading up to August this year.

Rich:
So, I did my last year in the military, right? I was in Korea for two years. By the way, while we were in Korea, from our perspective, we almost went to war with Korea, so that was a very busy two years or with North Korea.

Rich:
Anyway, I come back in 2019 and I have a year left. I’m in Montgomery, Alabama with my houses. So, I took over management, which actually makes me a lot more money, right? I’m now making an extra, in my case, maybe 2,000 to 3,000 a month because I’m managing my own properties. Then I decided, “Well, I’m here now.” So, I’m networking with people and I’m meeting people in-person, and I’m just much more of an ability to get a deal on a house as opposed to when you’re overseas. There’s no substitution for living somewhere and making connections with people in the community, and knowing investors, and meeting with them at these meetings and stuff.

Rich:
So, I bought a sixplex. I bought a sixplex before I knew there was a pandemic. I think I went into contract in February. Well, it came time to close on this sixplex, and it’s in a historic district here in Montgomery, Alabama. Come time to close and the pandemic is in full swing, and I was one of the first people where I think everybody is assuming, “Well, you’re probably going to back out because everything is going to crap with real estate.”

Rich:
I’m like, “No. I think I want to buy this property and just see if I can make it work.”

Rich:
Now, if I wasn’t in the financial position that I’m in, I wouldn’t have done that. It would have just been too risky. I would have been risking my future, but I was in a financial position and I am in a financial position to take a chance like that where I didn’t know if I was going to be able to get rents for the next months or a year. I mean, who knew what was going to happen back in March and April.

Rich:
So, I went ahead with it. Then actually, in June, again, just through networking and knowing people, somebody brought a fourplex to me. Now, the fourplex that I bought was a really, really good deal, and I bought that with 25% down under my name. I can’t remember the 4%, which seemed low at the time, but I mean, things are getting very low now.

Rich:
So, there I was. I was up 10 units with loans. Then I also bought a primary residence. Again, I wanted a place that was comfortable and mine to hang out with my family should we all be stuck working and doing school at home. So, that’s exactly what we did. We bought a nice, very comfortable house here at Montgomery, Alabama, a lot bigger than I’ve had in the past. We used the VA loan, no money down to do that.

Mindy:
Is that your first VA loan?

Rich:
It actually is. It’s the first VA loan ever. Again, I’m not always for, “Oh, I got to find a way to buy something no money down.” In this particular case, I think I might have had maybe $100,000 in the bank, and this is after buying the sixplex and the fourplex. I was looking at a 16-plex, and I was getting excited about it, but there was just too much going on for me with also buying this newer home, which is large.

Rich:
Once my wife got into this property, it surprised me how fast we were spending money, hardwood floors, painting the house, replacing fixtures. I can’t believe how many items come from Amazon and Wayfair everyday since we’ve purchased. It’s pretty surprising how fast you can go through your money in a case like that. So, I’m glad that I didn’t jump in this other 16-plex and get very tight with money and put myself in a position where I would have been uncomfortable.

Scott:
I think this has been fascinating. Just stepping back one second here, what do you think would happen to your financial journey if you bought this house 10 years ago in 2012 or something like that or a house of this sort?

Rich:
That’s an easy answer because I don’t think this house I bought is a very good investment. I mean, it’s just not, okay? Your primary residence is typically not a very good investment, and is certainly for a military member, absolutely for a military member. If you are moving every one to three years, and you’re not even sure if it’s going to be one or three years, and you go into some place like Honolulu or San Diego, and then you buy a house in a good school district that you and your spouse are happy in, and then live in it for two years and then leave and rent it out, you are probably going to lose money. That is just not a good investment for a myriad of reasons.

Rich:
Especially with no money down, you’ve got a higher payment, and you have no equity in the house, and if the market dips against you, it’s more difficult to sell, especially with the transaction cost of selling. So, I think it would have been a bad idea for me to purchase this house at any other point.

Rich:
In fact, I bought this house knowing that it is probably not a very good financial investment, but my wife and me want to own the property anyway, and that’s my way looking at a primary residence in a location like this.

Scott:
I think it’s the point. I think you went through, you spent 20 years of a career building up a real estate portfolio, and a financial fortress, and a pension, and all these other wonderful things. Now, your assets buy you the lifestyle that you exactly want, which includes this house. I just think that a lot of people attempt to do that in reverse.

Scott:
We’ve met, I think, very few people who have achieved a financial position like yours early in life who have done that in a house, in a housing situation that’s close to that 35% of their income or whatever is the situation. You can’t do it. You can’t accumulate cash meaningfully if you’re buying a house that’s a significant chunk of your income going to the mortgage or those types of payments. It’s not an efficient equity investment or deployment of equity relative to other alternatives.

Rich:
Yes. I mean, I think it’s just the classic. You have to forego the comforts of living in the house you want and you’re 25-26 years old. Maybe if when you’re 30, you’re still trying to save money on your housing situation with this hope that someday you get to buy the house that you want. In my case, that’s exactly what we did.

Rich:
Another thing that I’d like to bring up is when I was in Montgomery, Alabama, a perfect example of not buying your primary residence, there was a neighborhood that we wanted to live in. I’m like, “Well, I’m real estate investor. Why won’t I just buy the house that I want to live in?” Well, because that house costs $200,000, but it’s going to rent for 1,200 or 1,300 a month when I can buy a house for $70,000 in a different neighborhood that I don’t want to live in and get 1,000 a month. What I’m saying is that numbers, it doesn’t make sense to buy. I rented cheaper and bought houses in a different area as an investment to help pay my rent.

Scott:
I’m doing the same thing. I currently rent for that exact same reason.

Rich:
Yeah. Exactly. I’m not necessarily a Grant Cardone fan, but I know he’s very against the buying your primary residence and I do agree with his philosophy on that.

Scott:
Well, I think you buy your primary residence once you’re in a very strong financial position that can afford you whatever lifestyle you want and that’s what you want. I think you don’t do it until that point. So, I just completely agree with your philosophy here. All right. So, what is next here for you?

Rich:
Right. Wow! That’s the unknown. I want to do more with real estate, and I’m hoping to grow my portfolio. Again, I think I went from 20 to 30 fairly quickly. I’m managing my own properties right now and I didn’t do that for the first five or six years that I owned them. I had a management company.

Rich:
Having a management company and being unhappy about certain things I think helped me once I started managing like, “Well, I’m going to do it this way, and I’m going to set up my finances this way, and I’m going to do my reports this way.” I just had an idea of how I wanted to manage them.

Rich:
I’ve set up a very hands-off management system where everything is electronic payments. I’ve gotten people off of paying in cash and coming in to the office and even writing checks. Everyone is on electronic payments. Everyone is on texting. Everybody uses this app. I use something called TenantCloud, which I think is a little less known than Buildium, but it’s very good for smaller landlords.

Rich:
I’ve just streamlined things in a way where it’s like, “I think I’d like to try 60 units or 100 units, and maybe even continue managing it this way.”

Rich:
So, I have that idea on my mind of finding a way here locally to scale up and buy more properties. Another goal that I have is, and I don’t want to have a partner or have a syndication or get four or five people together and buy. I really like doing it on my own. So, that may mean that I don’t grow massive fast or become massively rich somebody, but I do it at my own measured pace.

Rich:
At this point, it’s a snowball. The measured pace gets a lot faster once you’ve got some money in the bank. It’s just slow at first. I think the answer to your question is I want to do something more with real estate because I enjoy it. It’s a hobby, it’s a passion, and I never had the time to do it. I wasn’t even in the United States to do it. So, now that I’m here, I’m excited. I’m cautious because of the pandemic. Hopefully, this won’t matter a year or two from now when people are listening to this. I’m cautious, but obviously not so cautious that I won’t buy any property. I bought 10 units during the pandemic.

Mindy:
You’re tentatively buying properties. You’re not jumping in with both feet. I mean, you got a sixplex. The rents from that sixplex, I am assuming at least cover the expenses of the sixplex.

Rich:
Oh, absolutely. It’s not a home run because it’s a B property in a historic neighborhood. So, I guess it’s a property that I’m a little more like, I don’t want to say proud of, but it’s beautiful brick, two-storey home. It’s from 1910. The people that worked there are usually, I don’t know, state employees, lawyers. It’s different. It’s a B property as opposed to a C. Now, for that B property, I don’t have as high of a cashflow. It’s also my first commercial loan that I’ve gotten as well. So, that’s what I did with that.

Rich:
Then the fourplex that I bought after that, somewhat, from my perspective, is a home run because it cashflows well with the mortgage. Obviously, I had a pretty high bar of, “I’m going to go into debt during the pandemic, so it better be something pretty nice or I’m just going to pass,” and that’s exactly what happened.

Scott:
Let me ask you a philosophical question here because you spent 20 years building a really strong position. Now, you’re continuing to grow your portfolio because you like it, because it’s fun, because it’s something you enjoy and there’s bigger rewards that come from it as well. When I think about something like that, something like the concept of having a very stable, fortified position that clearly gives me enough, given goal post of a great life that I desire is part A in something I’ve been thinking about, and then part B of that portfolio is this excess or surplus that you might invest aggressively to build with or play with. Is that how you think about things or do you think you have a different approach to how you run your portfolio.

Rich:
No, it is. I mean, I think for me, I’m still uncomfortable with debt. I have these 20 paid off properties and they’ve been making me really good cashflow for the past five years. That’s my financial independence right there. That’s it. That pays the bills without any other money. I don’t even need the pension if I have those 20 properties. So, there’s that.

Rich:
Then to be quite honest, I just wanted the challenge of buying during the pandemic and I also want to take advantage of a really cheap money. Those are two reasons why I went into debt, and it’s a growing opportunity. I mean, okay, 20 properties, that’s not too complicated. Let’s go to 30. Let’s do that with a loan. Let’s do that during a pandemic where I might really have to hustle to figure out how to make things work. I mean, that’s honestly what I thought.

Rich:
So far, it hasn’t been as bad as it could have been, but we’re just going to have to wait and see. I’m ready for whatever life throws at me, but my goal is to continue to grow, to buy more, but I have a higher bar of what kind of numbers I’ll need because of the pandemic, and also, I’ll be careful about how much debt I have.

Scott:
Got it.

Mindy:
I want to talk about your reserve fund. Do you have a formal reserve fund for your 30 units? Because when the pandemic hit in March, people on the Bigger Pockets forums were talking about, “How am I going to pay my April rent?” I’m thinking to myself, “That should already be in the bank, plus May’s rent and June’s rent.” I’m sorry, mortgage payment, not rent. I said rent. I meant mortgage payment. Those should already be in the bank. You should not be waiting on March 15th to see if you’re going to be able to pay your April mortgage payment. So, the 20 houses are paid off, and then you’ve got the six and the four, and your primary residence which has a zero down mortgage. So, you have three loans and the 20 houses, if everybody stopped paying rent, that’s okay because you, I mean, it’s not okay, but it’s okay because they’re already-

Rich:
It’s annoying. It’s very annoying.

Mindy:
Annoying, but it’s all paid off. The sixplex, okay. I’m throwing a thousand things at you. How much reserves do you have in relationship to how much mortgage payments you owe every month?

Rich:
Right. I never thought about it formally, but I mean, you don’t need to think about it formally when all your properties are paid off, right? I guess since then, since retiring, I also have a retirement income now. The cashflow that comes in every month is a decent cashflow, right? We’re talking, I don’t know, I mean, a lot of money comes in, but if you want to be very conservative, you’re at least getting $10,000 or $12,000 that you get to keep every month at least. Sometimes it’s more than that, but there’s a decent amount coming in every month.

Rich:
I think for me, I have Roth IRAs, right? I have Roth IRAs, and I have a Roth TSP, which has now been rolled over to an IRA. There’s decent amounts of money in those because I’ve been maxing those out for a long, long time. That money can be withdrawn. It can be withdrawn. You can withdraw the contributions to it without penalty. I hope not to do that, but that’s quite possible for me. So, I mean, there’s no way I could run out of money anytime soon. I have been overconservative with my savings.

Scott:
What do you do with your surplus cash?

Rich:
I mean, a lot of times, I’ll have anywhere between … It’s probably not the best deployment of my money, but I’ll have between $50,000 and $100,000 just sitting in two or three different accounts ready for the next larger purchase. It sure makes life a lot easier when you go to close on the sixplex and you’ve got to show the banks the money you have in different accounts and stuff, and again, you’re not hustling and trying to pull one over on your lender to make the numbers work.

Rich:
I usually keep a decent amount of money in cash in the banks. Then if it’s more than that, I like to invest it somehow. I actually did a couple of times now, I guess, I had lent money to investor friends, and they pay me 10%, borrowed the money for six months or borrowed it for a year. These are people that I knew where very good investors. I knew what they were doing, and they were just BRRRR-ing properties. So far, it’s always worked out.

Scott:
So, let me or go ahead, Mindy.

Mindy:
Stop sign. So, right now, I want to plug the Bigger Pockets forums because I think there’s a lot of people that are listening to this that might have some questions. I understand everything you’re saying because I’ve been investing in real estate since God was a boy. I have been doing this forever. I’m in the forums literally everyday, even on my days off I’m still in the forums because it’s my favorite website on the planet, biggerpockets.com/forums.

Mindy:
If what you’re listening to Rich say sounds interesting but you have some questions about the comments that he’s making, jump in to the forums and there’s the answer for … Every single thing that Rich is saying there’s an answer for in the forums. There’s the big long explanation. The people in the forums are really, really helpful to newer investors who are like, “Hey, I heard this term BRRRR. What does that mean?” It means buy, rehab, rent, refinance, repeat.

Mindy:
Even that just quick little overview, I mean, we wrote a whole book about it, not we, David Greene, the host of the Real Estate Investing Podcast, but there’s … I’m not sure that everybody who is listening to the show understands that Bigger Pockets Money is for biggerpockets.com, the website, which helps teach you about real estate investing.

Rich:
Sure. Yup.

Mindy:
Now, I want to compliment you on your strategic way of not throwing every dollar you have at real estate and overleveraging yourself and getting so stressed out and wondering how you’re going to pay next month’s mortgage. The $50,000 to $100,000 in the bank at any given time just waiting to deploy is the best decision in my opinion and yours, too, clearly, because you’re doing it, but that is, like you said, the banks want to see that you have money in the bank. They don’t want to lend to somebody who needs money. They want to lend to somebody who doesn’t need the money.

Rich:
That’s unfortunate, yeah.

Mindy:
It is. That’s just the kind of thing that you know after reading the forums for a long time. Banks are going to look for stability from you, and if you’ve got everything in the stock market in March 1st and then March 20th happens, and it drops 20,000 points or whatever, you just “lost,” you lost all that money until the market comes back up and conveniently in March it came back up or the end of April or whatever. It jumped right back up.

Rich:
Unless you sold, unless you sold, yeah.

Mindy:
Unless you sold, right. That’s why I said “lost” because you don’t lose the money until you sell, but if you’re storing your money in the stock market in the hopes that it will grow until it’s time for you to buy, it could take a lot longer for that market to come back up again. Whereas if you know you’re going to be buying soon, put it in a “high yield savings account,” which is currently paying 0.8%, which is better than zero, but only by a very small amount, but it’s still better than losing it in the stock market should the stock market crash.

Rich:
True. Yes. I mean, for me, even prior to going in the Bigger Pockets Real Estate Podcast, I had spent time in the forums and, of course, since being on it, you become a little mini celebrity once you’ve been on the podcast. So, I mean, people reach out to me all the time. Certainly, that podcast, I have to say, more so than any other podcast that I’ve been on, people just continue to reach out to me all the time on a weekly basis, several people, “I love your story.”

Rich:
A lot of them just want to invest in Montgomery and want my help. That’s probably the most common question I get. I’ve made amazing connections through the Bigger Pockets forums. People have reached out to me and as long as you bring value to the person you’re reaching out to or tries somehow to bring value to them, don’t just ask somebody to be your mentor. You can make a lot of good connections in the forums.

Rich:
It’s certainly been beneficial to me. I’ve met a lot of people that I’m working with here now in Montgomery. In fact, the person that brought me the fourplex is somebody that also was hopping around in the forums there.

Mindy:
There’s a lot of deals that get done behind the scenes on the Bigger Pockets website.

Rich:
Yup.

Mindy:
Okay. So, we have talked about your investment strategy. Do you have a ballpark of where your money is in real estate versus index funds or real estate versus stocks in general?

Rich:
I’m a little heavy on real estate because a while ago, and I’m going to talk about this, I put mine and my wife’s Roth IRA, I turned it into a self-directed IRA, and I paid cash for properties in those. So, four of my 16 properties are in IRAs. I don’t think that’s necessary the best way. I don’t think that’s the best thing I could have done with that money. I think that you’re probably better off leaving your IRAs in the market. That’s just my two sense.

Rich:
Again, I think it’s an advanced strategy that you can use once you’re stabilized in real estate and you have some money, and you just want to do more with real estate and you’re running out of capital.

Rich:
What I found with what I did with those IRAs is that it’s not the best way to get around taxes because, and IRA is a tax shelter and real estate is a tax shelter. When you put a tax shelter in a tax shelter, there’s some efficiencies that you lose there. Sorry. I think I lost track. What was the question again? Could you bring me back to the track?

Scott:
Just if you have a big pie chart of your overall asset allocation, what percent do you think is in real estate? What percent is in cash? What percent is in other types of investments?

Rich:
25% in cash. A lot of it is in equity and real estate, obviously.

Scott:
Okay. There you go.

Rich:
When I say cash, I mean, not in real estate. Yeah.

Scott:
Now, do you own any stocks or publicly traded securities?

Rich:
Yeah. I mean, my whole TSP and TSP is Thrift Savings Plan. It’s the 401K equivalent for military members. My TSP is all invested in the S&P 500 Index. Well, I say S&P 500 Index, it was invested in the equivalent because they have these funds that are equivalent, equivalent to our indexes, but I’ve since moved it out of that, put it in a normal, I guess you could say a roll over IRA, moved it out of the TSP, and then just put it in to the S&P 500 Index.

Rich:
That’s where I’ve been maxing that out as long as I could for at least going back to 12 or 13 years, where you can put in, right now I think it’s 19,500 a year, but doing that and maxing out my IRAs for my wife and myself, to me, it comes before doing anything in real estate. I do those things first and then I’ve got a find a way to have extra money after that so that I can invest in real estate. I certainly wouldn’t raid those things or put those things at risk to invest in real estate.

Scott:
Love it. I love everything about your philosophy and how you’re handling this stuff. One last question here because I think we’ve got another large asset here that we haven’t discussed, which is just, and we don’t have to go into detail, but your pension. That’s another big piece of your net worth, even though you don’t probably think of it as an asset in a lump sum amount, but it’s an income stream that you’re going to be getting for the rest of your life as well.

Rich:
So, I guess to talk about that, you did 20 years on the military and you get 50% of your base pay for the rest of your life. Now, that’s a little bit misleading because your base pay does not include your rent. The military pays you your base pay and your rent pay separately, right? So, I guess if you do the math, it probably turns out being 35 or 40% of your paycheck because you’re just getting 50% of your base pay and your rent money disappears. So, that’s what it is.

Rich:
If you’re curious, I mean, I retired as a lieutenant colonel. You can just look it up. Lieutenant colonel 20 years, see what the salary is. I’m getting exactly half of that. I guess, it’s taxed income. I think there might even be states where … There are states where military pensions are not taxed.

Mindy:
Ooh! Is Alabama one of them?

Rich:
I’m actually not sure. I don’t think it is. No. You can Google it and pull it up real quick.

Scott:
I just love the way that you’ve gone about setting up things here. I want to point out several distinctions in the way you’ve constructed your portfolio and the way some of the, how do I phrase this, but the cool kids in the real estate community have set up their portfolios. You have a financial fortress with a strong cash position. 25% of your asset is in cash.

Scott:
You’ve maxed out your retirement accounts for almost the duration of your career. You’ve got mostly paid off properties. You’ve got a substantial amount of cashflow, which I imagine is way in excess of the amount that you need to live on just from your real estate portfolio, plus a pension, plus those other investments we just talked about, plus the cash reserve, and you’re building the portfolio with 100% ownership. So, it seems like you’ve now got whatever you want to do, you can do. You’re not going to have the 10,000 units that some of these folks have with their funds, but you also don’t report to anyone or LPs or these other investors or these other folks that are lending you money or investing alongside you that you are accountable to for returns and those types of things.

Scott:
Yeah, sure. It took a little longer to get that snowball running and started, but I mean, how do we make this the cool position to be in rather than the one where I’ve got the-

Rich:
Right. I think I am the cool kid, but I also think I see the problem with my way of doing things. The problem is you can’t do it fast, and that it’s not easy. I mean, that’s the problem. What I like about the way that I did things is I think it’s highly repeatable. I mean, I think almost anybody that goes about it in the way that I did over the period of time that I did could have similar success. I mean, I don’t think I have some huge lucky event that nobody else could, that could explain everything that’s happened to me.

Rich:
I mean, I just kept trying things and trying things, and being cautious and protecting what I had already while cautiously moving forward. It’s highly repeatable, but it’s not cool, right? It’s not cool because if you have bad credit and no money and no experience, you have no way of getting $2 million in one year.

Mindy:
Thank you. Thank you. If you have a bad credit and no experience, you are not going to make $2 million in real estate investing in the first year. I really want you to, but that’s not going to happen. For the people that are … Oh, how do I say this? There are a lot of people that come in to the Bigger Pockets forums, are super excited, “I’m going to make a million dollars this year,” and then it turns out, “Oh, that’s a lot of work and I need money to do that, and never mind. I’m going to go find something else.”

Mindy:
Real estate investing is sexy when you look at people like Grant Cardone, who are buying 500-unit apartment buildings every week, but he has money. He has money to do it. He has experience to do it. Rich didn’t start off with a 500-unit apartment building. He started off with one single family home. Actually, he started up with a townhouse and then moved up.

Mindy:
So, yes, you can do it. It’s absolutely repeatable. It’s not fast. Get rich slowly is the steady way to get rich. It’s just, oh, I don’t know. I know exactly what you’re trying to say and I’m flubbing over my words, but, yeah, it’s not sexy at all and it’s not fast, but I mean, it’s still fast. I mean, seven years? Look at what you have built in seven years. You have been investing for seven years and you have 30 units.

Rich:
Right. Yeah. I mean, I think, I mean, it all comes down to it’s not sexy, but it works. I think a lot of times people will try to use real estate as a way to get out of debt. Real estate is a way to get rich quick when they still got other things in their lives that they have to fix. It’s possible. I mean, I think there have been people on podcasts who have done it, but those people are in the minority and more fail than make it with that method.

Rich:
You’re better off … You want to invest in a property but you have no money and you have bad credit and you have not experience. Well, pay off your debt, get some money, get experience, and then invest in a property. Nobody wants to hear that, but that is the smartest way to do it. That has the highest likelihood of not failing.

Mindy:
Okay. I just looked it up and all military retirement pay and survivor benefit program payments are exempt from any Alabama state, county or municipal income tax.

Rich:
Hey, that’s important for me.

Mindy:
That’s important for you and for anybody else who’s listening who has military retirement pay or survivor benefit program payments and want to move to Alabama or are thinking about it.

Rich:
Oh, awesome. I haven’t done taxes since being retired. So, that will be fun.

Mindy:
Okay. Rich, this has been fabulous. I love your story. I love the fact that you are not just jumping in with both feet and doing everything you can to make the most amount of money right now, and really being cautious. I think that there’s a lot of people out there who are promoting this “Oh, just do it and figure it out later” concept and I don’t like that. I like this be slow and do it right. So, you’ve done it right. You get the Mindy stamp of approval.

Rich:
Oh, thank you.

Mindy:
It is now time for our famous four questions. It’s the same four questions we ask of all of our guests. Rich, are you ready?

Rich:
I’m ready.

Mindy:
What is your favorite finance book?

Rich:
Okay. The finance book, Nassim Taleb, he has a book called Fooled by Randomness. Now, he also wrote The Black Swan and Antifragile. I feel like that book, maybe more so than any other, shaped my opinions about money and chance and the markets. If you haven’t read it, I highly recommend it. Basically, it has a lot to do with understanding and maybe not being a huge fan of most types of money managers and investment bankers and how chance plays a role in the success that certain people have. It’s a very interesting book.

Scott:
I think I’ve read that a while ago, but I have to go back and refresh it. Yeah. It’s very hard to tell what’s going to happen next. 10 tails in a row does not mean the next flip of the coin is going to be tails again. It could be heads. What is your biggest money mistake?

Rich:
My biggest money mistake? It’s interesting. I was looking at my TSP, which is my 401K, and I have this little blog and I try to talk about finance and real estate with people. I always preach that you got to max your TSP, which is your 401K and you got to max your IRA, and you got to do it from a young age no matter what, no matter how hard it is.

Rich:
When I went back and looked at what I did, I think I somehow thought that I started much earlier maxing it out, but it actually was more 2011 or 2012 until I started maxing it out. Then I did the math. If I would have found a way to max it out, where would I be sitting today versus where I am now. It’s astronomical, the difference. I mean, if I just could have maxed out my TSP from the beginning of my career, I’d be in a much better financial position right now, something that simple, not even talking about real estate.

Scott:
What’s the relative magnitude of that? Is it hundreds of thousands?

Rich:
Certainly hundreds of thousands, yes, certainly. I could have made a million in net worth or more than a million.

Scott:
Wow, from just 11 more years of maxing out the retirement.

Rich:
Yeah, because it’s the first years. It’s 2000, and 2001, and 2002, and 2003. Those are the years that really make you a lot of money. Unfortunately, what I invested my last year on the military, which was easy to do, isn’t near as helpful as those earlier years.

Mindy:
Yeah, that 19,000 has been growing for a year.

Rich:
Yeah. Although it’s been a decent year, right, but, yes.

Mindy:
Yeah. Well, it’s not been a decent year. It’s been-

Rich:
The markets haven’t died yet.

Mindy:
Yeah. Okay. What is your best piece of advice for people who are just starting out?

Rich:
Yeah. I think I’ve probably said it in several ways already, but my best piece of advice is don’t be so eager, right? Don’t be so eager to invest in something now because you see everybody else doing it because a lot of the people you see doing it are doing it wrong and are going to screw it up. A lot of times they tell themselves they’re making money, but they’re actually not.

Rich:
So, invest from a financial position of strength. Fix the problems that you have. Get rid of your debt. Find ways to make more money. Find ways to limit expenses, and be ready to pounce when that opportunity comes in front of you, and you’ll be in a position to realize it.

Scott:
Outstanding. That’s my favorite piece of advice that I’ve heard in the 156 episodes of Bigger Pockets Money Podcast. Couldn’t agree any more than that.

Rich:
Oh, I’ll take that as a super high praise. Thank you.

Scott:
All right. Last question here. What is your favorite joke to tell at parties?

Rich:
Was that one of the questions?

Mindy:
Yeah.

Scott:
That is the question. We’re going to ask you with a completely straight face and see what they come up with.

Mindy:
That’s okay, Rich. I have jokes. I have jokes.

Rich:
Okay. Please.

Mindy:
I know a lot of jokes about retired people, but none of them work.

Rich:
Oh, thank you, thank you. I’m feeling that these days, yeah.

Mindy:
A timely joke, a timely bonus joke, what do Santa’s elves listen to as they work?

Scott:
A whole package of music?

Mindy:
Rap music like Christmas wrapping paper, rap music.

Rich:
Yes, I love it. No, we get it. No, we got it. Yup.

Mindy:
Sometimes they’re so stupid you have to explain them. These are the kinds of jokes that’s got loves.

Scott:
Yeah, I love them.

Mindy:
Okay. Rich, where can people find out more about you?

Rich:
Yeah. So, I have a blog. It’s called richonmoney.com. I’m going to set up a little page, richonmoney.com/biggerpockets. People can go there and just I’ll link to a couple of my articles that I’d like them to read or a little ebook that they can download of what I like to call Conservative Real Estate Investing.

Mindy:
Ooh, I love that. Yeah.

Rich:
If people would like to reach out to me, send me an email, [email protected]

Mindy:
I love it. Rich, this has been fantastic. I love your story. I love your followup story. It was fun to talk to you way back when, and it’s super fun to catch up and see what you’ve been doing. I was being facetious when I opened the show with saying, “You haven’t been up to anything.” Do you ever sleep?

Rich:
I do sleep, yes. In fact, I’ve been taking life … I mean, I was in the military. I had a super stressful job. Life is a lot easier these days. I’m very happy.

Mindy:
Good. I’m glad. I’m glad you’re enjoying your retirement.

Rich:
Yup.

Mindy:
Rich, this has been super fun, and I really appreciate your time today, not that you don’t have tons of it because you’re retired now, but it was-

Rich:
Mindy, yeah, go ahead. Sorry.

Mindy:
No, no, go ahead.

Rich:
Mindy and Scott, no, seriously, thank you so much. This was so much fun. Your audience is my people. I love this. I encourage you guys to reach out to me.

Mindy:
Yeah. Rich is very generous and very easy to talk to. So, reach out to him if you have any questions about real estate investing or Alabama, specifically.

Scott:
Thank you, Rich, for just incredible content today. This was so informative. I learned a lot. I agree completely with your philosophy. Like I said, I really think that the way you phrased it, I’m going to quote it in Instagram. I think this is a perfect phrasing for how to get started in investing, do it from a financial position of strength, get everything else be ready for that opportunity when it comes along. Thanks again for just coming on the show today. I always learn a lot.

Rich:
Thank you. It was awesome. Thanks you guys.

Mindy:
Okay. Scott, that was Rich Carey. What did you think?

Scott:
I thought it was great. I think the guy has, again, complete mastery over this world of money and investing. He’s not trying to get rich quick, and because he wasn’t trying to get rich quick, he got rich fairly quickly and built a very sizable portfolio that seems, from my perspective, completely indestructible and it’s going to set him up for the rest of his life very easily with tons and tons of leeway. So, look, I think that this is the way to go about it. This is where we all want to be in terms of our money journeys I think right where Rich is today.

Mindy:
Yeah, and he didn’t get there fast. He got there cautiously, and I think that’s the best way to invest from a position of knowledgeable … Knowledgeness isn’t a word.

Scott:
Yeah. Look, the guy was extremely disciplined with his budget for a very long time. He didn’t make a lot of money. Nothing he did was unrepeatable, and he spent a large amount of time and a large amount of energy in his free time just looking for opportunities to make more money on the side of his very successful but not high-paying military career. I mean, what could be more simple conceptually than that and repeatable than something like that for you if you’re listening, than a story like this?

Scott:
I’m sure there are ways, if you’re not in the military, for example, don’t have that 20-year cutoff with the pension, to shortcut some of that or find ways to earn more income or speed up certain parts of it, but, man, what a good end state to get to, what a good ending target to think about.

Mindy:
I love that he is still running the numbers. Near the end, he said, “Of course, I’m still looking for more properties, but I have a higher bar. They have to meet the numbers that I’m looking for.” Again, that’s just this position of confidence and, “I know what I want and I’m not going to just blindly grasp at anything. I’m going to get what I want and I’m okay with being patient to get it.” I love just the overall message.

Scott:
That’s right.

Mindy:
Scott, we talked a lot about real estate today because that’s Rich’s main method to get to financial independence, but I’m sure there are people listening who don’t really have a lot of real estate knowledge, and I wanted to just share the website for Bigger Pockets forums. It’s biggerpockets.com/forums. You can go in there and we have I think something like 87 forums, 87 different categories. We talk about real estate all day everyday on Bigger Pockets, and the forums are a great place to ask questions or just read the answers from other questions that you have, and learn all about real estate investing, so you can have the best chance to be successful in your real estate endeavors.

Scott:
Yeah. The way I set up my tuning in to this world of investing in real estate is, one, I’ve got the Facebook groups, which we now have 8,000 members at the Bigger Pockets Money Facebook group. The problem with that is, while it’s a great group and there’s lots of things there and we have a great time in that all the time, is that you don’t really know the credentials of the person who’s responding to you in that Facebook group. If you ask a question, you don’t know if that person really has that experience, whatever. It’s a great crowdsource way to get some feedback and have some fun at the same time.

Scott:
What’s cool about the Bigger Pockets forums is you might ask a question at the Bigger Pockets forums about how to get started in real estate or about a specific market, and people will respond. You’ll be able see, “Wow! That guy has got five, 10 years of experience. He’s posted 500 times at the Bigger Pockets forums. He’s done 17 deals. He’s got 1,500 votes and 350 colleagues. Hmm. This person has no posts, no votes, no picture, and didn’t write very coherently. Hmm. Where’s the good advice going to come from?”

Scott:
What’s awesome about this is we’ve got guys like Rich who will post in our forums and you might ask, “What’s the best way to get start in real estate investing in Montgomery?” and he might articulate his concept and another equally successful, equally informative poster will come in and describe an opposite approach about using other people’s money and a lot of leverage, and you’ll get both opinions at once in the forums. That’s what I think is really special about that and a great way to do some research and meet some of the real power players maybe in your local community on Bigger Pockets there.

Mindy:
Yeah. We’re not saying that Rich’s approach is better than the guy who’s doing leverage. It’s a matter of what you’re comfortable with. Rich isn’t comfortable with being leveraged to the hill, so he’s not and this other guy is comfortable being leveraged to the hill, so he is. When you see the different arguments, maybe you’ll start to identify with somebody else’s approach better. It’s a great way to get a large picture of how people are investing in real estate and investing successfully.

Scott:
Yeah. Mindy, how many posts do you have in the forums these days?

Mindy:
7,000 something. I don’t know.

Scott:
Oh, jeez! I’m only at 1,700.

Mindy:
Well, maybe your job should be to post in the forums every single day, Scott.

Scott:
I probably should do that more frequently.

Mindy:
Boy, I wonder what-

Scott:
1,700 is still not too bad, though. All right. Well, should we get out of here, Mindy?

Mindy:
Okay, Scott. We should.

Scott:
Go post in the forums.

Mindy:
From episode 156 of the Bigger Pockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying, “Later, skater.”

 

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In This Episode We Cover

  • The importance of maxing out your retirement accounts when you’re young
  • How to not only pay off your rental properties, but primary home sooner
  • Why there is an advantage to not having too much leverage on your investments
  • How to test out a property manager when long-distance investing
  • Why you should set goals to be in a financial position of strength 
  • Why you don’t need to be in a rush to invest right now
  • And So Much More!

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