Brandon: This is the BiggerPockets podcast Show 288.
“That was one of the first times we had used the BRRRR strategy and seeing that profit and with only $3,000 of our own money. And so it was just kind of crazy realizing I mean, people tell us all the time—you can’t buy real estate anymore with zero money down but we would argue you can. You can buy money with zero dollars down and I think that was my lesson”.
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Brandon: What’s going on, everyone? This is Brandon Turner, today’s host of the BiggerPockets podcast, here with my co-host, Mr. David Greene. How are you doing, David Greene?
David: What’s going on, BT? I’m doing really good. We have some awesome guests today. You know what’s funny, you actually mentioned in the very beginning of this podcast the velocity of money and that is what I’m going to be talking about in the next Meetup that we have coming up, is why the velocity is important and what it is.
Brandon: Fancy, look at you doing Meetups. Yeah, you know what, this is a message to everybody out there listening to this right now. If you’re not regularly meeting up with other real estate investors, man, you’re missing out. There’s so much you can learn and grow as an investor just by being around other people who are doing awesome stuff. So that is today’s Quick Tip.
Yeah, BiggerPockets.com/events if you want to find one event in your area. I know I say that every week but seriously it’s so good to just get together with other people in the real world. So do it. Stop thinking about it, do it right now. Pause this thing and go to BiggerPockets.com/events and sign up for the next event in your area. If there isn’t one, start one. With that, let’s get to today’s show sponsor.
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Alrighty, thank you to our sponsors as always. Make sure you guys are out there supporting our sponsors. They’re the ones that make this possible to keep the show on the air. So I don’t know. That’s pretty much all I got before jumping into today’s show. So I may as well introduce our guests, plural, today.
Today we’ve got husband and wife duo Jason and Carrie Harris. They are fantastic. You guys are going to love them. They are real estate investors in their early thirties who are absolutely crushing it in their real estate buying small multi-family properties. They live out in Utah and they’re doing some really amazing things with financing, with finding deals.
We cover all that. We go really deep into a recent deal that we did and they made like $186,000 on one deal, tax-free. It’s incredible. And they put no money down to buy this deal. I think all they had into it was like $3,000 in repairs. It’s a super cool story so hang tight for all of that. You’re going to love it.
And the last thing I’ll say before we bring them in is this. If you have not left us a rating or review or both in iTunes, please do so. Let the world know that you like this show and that you think we’re doing a good job or if you think we suck, let us know that, too. That’s fine. And call David Greene by name there if you’re going to that route.
All right. No, I love David Greene. So David Greene, you’re a good guy. It’s not true what they say about you.
David: Thanks, man. As long as that’s how you feel, I can handle the rest.
Brandon: Okay, good. Alrighty, well, I think that’s all we got. So let’s bring them in.
All right, Jason and Carrie, welcome to the BiggerPockets podcast. Good to have you guys.
Carrie: Good to be here.
Jason: Thank you. Glad to be here.
Brandon: Yeah, so let’s go through your story and talk about how you got into real estate. You guys are doing some really impressive stuff. I kind of looked over your story and it’s amazing. But before it was amazing, it probably started with a single deal. Am I correct?
Brandon: All right, because that is kind of like required by logic. So let’s go through and the very first—how did you get into real estate and why did you choose real estate? What did that first deal look like?
Jason: It was a little accidental to be honest. Carrie’s parents and grandparents own some real property. And I actually am a financial advisor. I’ve been investing in stocks and we had a little bit of money and I was interested to get started in real estate.
And so when her parents were going to sell their duplex and go to a fourplex, I asked if we could take them to dinner and see if we could be involved somehow, owning one of the four units and I’d do all the work and add value somehow there. And we found out after they were nice enough to let us be introduced to their real estate agent that we actually were in a position of financing something on our own.
Once we found that out, we were like wow, and bought our first fourplex with an FHA loan and we can go into more of that if you’d like to know some.
Brandon: I’d actually love to because you know the whole you bought a fourplex—I’m assuming you lived in one of the units?
Carrie: We sure did.
Brandon: As we call it house-hacking here. We like that term. Tell us about that. What was that like? What were the good sides, bad sides?
Jason: It was amazing, to be honest. It was life-changing for us, I think. We found out that you can buy a property almost a half a million dollars for 3.5% down and as soon as I found that out, I realized that we had enough money to do it.
I started analyzing different properties and deals to find out where we could invest that money and within a month or two, we had already recouped our down payment we put into the property. So the whole velocity of money, putting your money in, getting the money back out but retaining the asset that cash flows and being able to repeat the process was so exciting to us that I had a new take on real estate and knew—
Carrie: He was obsessed at that point.
Carrie: We also were able to live rent-free while living there which was huge for us because we were actually both in college still. I was 22 and he was 24 so I mean, we didn’t have a lot of money. For us, we were living in this place that was a lot nicer than anything we could have rented but we owned it which is so crazy to us because we were so young. Yeah.
Jason: It was so funny, when we got the lease agreements and then did the background checks, every single one of our tenants was older than us, made more money than we did—
Carrie: Yet we owned it.
Jason: We couldn’t have afforded to live there—we couldn’t pay the amount of rent to live in a nicer place, get all the forced appreciation and equity and saved what we would have been spending in rent, and that enabled us to be able to repeat the process sooner than we otherwise would have. I was hooked on real estate from the very beginning once that happened.
Brandon: One thing I’m curious about, Jason, you’re a financial planner so it’s your job to help people make money, right? What was it about real estate that was so appealing it pulled you in that this was something you make your life income by looking for financial opportunities?
Jason: That’s a great question, David. We started in real estate in 2010. I was 24 years old at the time and I started as a financial advisor with Edward Jones in 2012. So real estate was my baby first, I guess, you could say. So I was hooked on real estate. Edward Jones and being a financial planner was just something I’ve always enjoyed doing.
I had a relationship with an advisor in Texas where I’m from where I had saved up this money in order to have the down payment to buy our first property. But real estate came first. We decided to have more reliable income. I was going to choose to be a financial advisor by day and a real estate investor by night. That was a lot of discussion.
We attended some real estate seminars together and I was thinking about going all in, being a full-time active investor but it just made sense for us to take that route. I’m so excited to actually understand real estate. Most financial advisors focus only on stock investing and believe in pitch stocks against real estate and I think that’s the completely wrong approach.
I think that everyone should consider real estate as part of their financial planning. Whether or not they’re going to buy rental as for investment property, your house can be part of that financial planning. It needs to be discussed on how you’re going to utilize that as an asset.
David: So tell us about this first deal. What did you pay for it? What rent did you collect? How did you guys have that set up?
Jason: Absolutely. The first deal we found that got under contract, we were so excited about and then something fell through on that. She was devastated so she started looking herself. We worked with a real estate agent and we found a property out in a city that wasn’t where we currently were. It was $434,000 which was about $100,000 to $130,000 more than the other four we were looking at.
So that was a little intimidating until we started breaking down the numbers and analyzing it. What we realized is by buying a bigger property, meaning more bedrooms per unit, the additional cost was justified in the additional rent income we could make per apartment or per property. And so I loved it. In fact, the numbers looked a lot better on net and so we fought the loan officer. We were turned down many times.
Carrie: You can’t tell this guy no.
Jason: I remember about a two and a half hour meeting where I kept saying no, there’s got to be a way because if we could make this happen, it was going to set us on a path to be able to achieve things a lot faster than I had ever imagined as I was putting money away for stock investing.
I’m so excited that we found a five-year ARM that reduced our interest rate that allowed our debt to income ratio fall within that 43% ratio that often underwriters are looking for. Where if we would have done a 30-year fixed, the interest rate was too high. We wouldn’t have been able to qualify. So we hashed that out for about two and a half hours and finally found a solution.
Brandon: I love that you said that. A couple of things I want to point out there. First of all, if there were terms in there that the listeners here, you guys listening didn’t understand—what’s debt to income? What’s ARM? What that should tell you is that these are terms you need to know.
We can talk about them a little bit. So debt to income is how much debt you have compared to how much income you have on a monthly basis and ARM is an Adjustable Rate Mortgage but like if you want to get financing, like it’s not—in fact, I was just creating a video for BiggerPockets earlier today. I just filmed it an hour ago, on this very topic.
And it’s like if you want to get approved for a loan, it’s not a mystery. It’s not a subjective thing. The bank doesn’t go, I like you, I’ll give you a loan. They say, did you hit our combination? Did you enter in the code right, like high school locker style, right? And so I love that you guys sat there and you went through and you’re like, no, we’re going to figure out a way to get this combination open. We’re going to keep working this.
And the only way you can do that is by understanding what is an ARM? What is a debt to income? What is the credit score? What is the requirement for all that? And as long as you do the combination right, you’re going to get in.
Brandon: So that’s fantastic. I will throw this out there as well—I wrote a guide a while back called Unlocking the Secrets to Bank Financing. It’s totally free. If people want to check that out, it just goes through all those metrics. BiggerPockets.com/BankFinancing. Again, it’s BiggerPockets.com/BankFinancing. There’s no opt-in and there’s no charge. It’s like an e-book I wrote. Check it out.
So anyway, all right. That’s super cool. I love that story. I love people who start that way because as you guys mentioned, when you don’t have to pay rent to live, you can live for cheap or for free, which house-hacking allows you to do. It gives you the ability then to use your money for other things. I’m assuming you guys started buying more real estate deals sometime after that, right? So walk us through what came next.
Jason: Yeah, great question. So before we bought the fourplex, we were able to save about $300 a month from our income. We were in our early twenties. We didn’t make a whole lot of money in our twenties even. So that extra $900 a month that we now were able to save, that we were paying in rent, allowed us to now save $1200 a month. And that’s exactly what we did. We started putting that away, investing it, so that we could buy our next property.
At that particular time, they were offering the first-time homebuyer credit of $8,000 so we were required to live there for three years. So our process was actually really slow and we learned things along the way that could help speed that up.
But at that particular time, we weren’t able to buy our next property until 2014. We found what’s called a portfolio lender who had a special loan. Since you can typically only have one FHA loan at a time, unless you made certain criteria. We went through this portfolio lender that allowed us to put 10% down on a duplex—
Carrie: Owner-occupied again.
Jason: Yeah, if we owner-occupied it for a year’s time. So that was our next deal. We bought that one for $271,000. It was a four-bedroom, two-bath apartment per side. And our mortgage payment was $1313 a month and the rent income on the other side was $1200 a month. So when we left our fourplex and moved to the duplex, we now had another $950 a month from the apartment we were living in.
So now all of a sudden, you can save a little over $2000 a month in our case to put towards the next property. So you keep learning more and more on how to get each property faster and smarter. So that was the next deal.
David: So tell us on this deal, what is a portfolio lender and why did that allow you to put 10% down when conventional wisdom says you have to have 20-25% to put down on investment property?
Jason: Yeah, great question. So typically the banks, the traditional bank is going to want 20% down owner-occupied duplex, but there are certain banks that don’t sell their loans to Fannie Mae and Freddie Mac. That means the bank’s going to create their own product that they keep in-house and so we worked with U.S. Bank in that particular case. There’s a lot of other banks, too, that will potentially offer that.
But they offered or allowed us to put 10% down if we owner-occupied it. And again, we did a five-year adjustable rate to have a lower interest rate because our goal was to make our monthly mortgage payment as low as possible. And within the five years, some day in the future, rate and term refinance into a 75% loan to value loan or an investment loan. We wanted to get that loan back in order to owner-occupy another one in the future. That’s what I’m trying to say.
David: So that’s interesting that you guys used this Adjustable Rate Mortgage more than once when a lot of people hear that word and they immediately think, oh that’s bad. I’m going to lose my house. It’s dangerous. I don’t want that. Help us understand why that was something you saw as a positive and how you used it to help your situation.
Jason: Great question. And I would say, David, maybe I wouldn’t be recommending that to people now necessarily. The Federal Reserve is trying to increase interest rates and so that is something that you’re going to want to factor into your numbers that in five years, that rate could increase. At this particular time though, again, we were starving students. We didn’t make a lot of money. That payment was very critical for us. So what we wanted to do was do everything we could to increase the value of the property.
And we thought the only way to do that was either sweat equity or the potential cash flow or cash savings that we were going to make by having a lower mortgage payment. And so with the additional cash flow we were making each month, we could take that money and improve the property, increase the value, and within the five years, we thought we would be able to have the 25% or more equity needed in order to get that loan out of there before the interest rate would change.
David: And also, your rents probably went up every year. So as the interest rate might adjust, your income kind of comes in and it offsets that a little bit.
Brandon: One thing, I don’t know if this is true for your Adjustable Rate Mortgages but I did one recently where I refinanced a property, I BRRRRed it. So I bought it with private money, rehabbed it, rented it out, refinanced it. And when I did that, they would only give me an Adjustable Rate Mortgage. But I looked at the paperwork and because of all the mess of 2008, there is now caps on how high and Adjustable Rate can actually go.
In this case, it was 11%. It would never go higher than 11% ever. So even if interest rates jumped to 30%, 11. So I ran my numbers and said okay, 11%. If that’s what it goes to, what am I at? And it increased my payment like $100 a month on my property that was cash flowing $700. So I was like all right, do I really care about Adjustable Rate if in worst case, it raises it by $100 a month? No. So I kind of weighed that as well. So that’s something, I think a lot of times we are afraid of Adjustable Mortgages and we remember what happened in ’07.
Jason: That’s a great point. Most of them that I’ve found that we’ve done have capped at 5% more than whatever you start at. So most of mine at a particular time are 3.75% roughly. So 8.75% was the maximum that we would have paid. We would have been fine, too, if that would have happened.
David: All right, so tell us guys, you obviously got off to a really good start. How has your business evolved? What have you guys grown to? How many doors do you have?
Jason: At the end of this month, we can close on the few that we have under contract, we’ll have 75 doors. About $11 million in real estate value. And cash flow, gross scheduled income will be just over a million. So we’re excited. I can’t believe how far it’s come and it’s happened really fast.
Brandon: That’s awesome. So are those single-family, multi-family? What does the makeup kind of look like?
Jason: Almost all of ours are multi-family units. So duplexes and fourplexes are almost everything that we own. There are a few that we have house-hacked and instead of selling, I guess we’ve kept them. The plan will be to sell them within five years because we lived in them two out of the five. Which then allows you to sell it tax-free, whatever capital gains is.
Brandon: I love that.
Jason: Most of them are multi-family units.
Brandon: Yeah, for those people who don’t know, and again, we’re not CPAs or lawyers or giving you tax advice, but there is a thing in the IRS Code that says if you live in a property for two out of five years that you own it, you can potentially avoid—do you like how I’m doing my lawyer speak? You can potentially avoid paying the capital gains tax on that. So I see recently that I sold a house. I think we made $80,000 on it or because I’ve lived there for two years, paid zero dollars on capital gains.
Jason: That’s awesome.
Brandon: Yeah, right? That’s such a cool little—every few years, that comes up and they threaten to take that away from us because it’s a really nice little benefit but not yet. Still there after this recording. So hopefully they’ll have it for a while. Very cool.
All right, so you guys have 75 doors. A lot of people are probably wondering, I want to cover how do you finance or fund and all of that stuff. Or how do you find them? But a lot of people are worried about this, I can’t have more than four properties. Basically they say things like that, right? Because that was the old rule. How have you gotten around the limits you can have?
Jason: So good question, there is a lot of banks that will go up to ten loans per person and so if you’re married, that’s a benefit to have ten loans per person. So what we did is we started out putting Carrie and I both on loans and then realized this later, since we’ve refinanced out of some of these first couple of properties we’ve talked about. We did that in my name only.
And over time, we’ve been building up Carrie’s income so she can get her own set of ten loans. Another thing that we’ve done, I think, that helps is a lot of our properties are similar in nature, which will allow us to actually get a commercial loan on these properties down the road. If we want to get some of those four or ten residential loans back, because they do cap you on that.
So through commercial financing and then residential financing—
Carrie: And partnerships. We have used partnerships also.
Jason: Yeah, partnership deals. We’ve used the BRRRR strategy. There’s a lot of different strategies to use but yes, the banks do cap you at the ten amount per person.
Brandon: Yeah, that’s awesome. Getting around that is just really a matter of understanding the different options that exist. Like people start freaking out but they’re on their first deal. They’re like, what do I do after five or ten, right? When you get to ten deals, you’re going to know exactly—you’ll figure it out. You’ve got the experience, you’ve got the knowledge. You’ll figure it out. You can partner or do the husband-wife thing or go commercial, go larger properties, whatever.
Jason: Absolutely. Yeah.
Brandon: It’s really only an issue to people when they’re on their first deal or second deal.
Jason: Sure. I would recommend though if you’re able to only have one of the two spouses be on the loan. Because then it gives you the ability to add a spouse later or have that spouse get loans in the future. So that was one thing that heavily helped us.
We also have bought a lot of property close together in proximity that have similar floor plans and commercial lenders really like that. So that fourplex we first bought, we now own the fourplex right next door, exact same floor plans, built the same year, share the parking lot. That, to a commercial lender, is an eightplex. And I can easily turn around and give that to the commercial lender, get two residential loans back so I can go out and get more residential loans.
David: Now, Carrie, we mentioned that you are building up your income so that you can start getting some of these loans in your name so I understand that you’re a—are you a broker or a real estate agent? Both?
Carrie: I’m a real estate agent. Hopefully soon-to-be broker. I just passed my test.
David: Congratulations on that.
Carrie: Yeah but before that, I primarily just stayed at home. When we were first married, we had our first baby after 18 months of being married and I just stayed home with the kids. But we’ve slowly been putting the properties in my name and then now that I have my real estate license, every time we buy something, the commissions also count as income for me. So I primarily just do stuff for us with the real estate agent thing. But it’s been able to help me build my income so that I can also have my own set of ten and we can be buying things in my name and Jason’s name and it just gives us more options.
David: Yeah and I actually—that’s where I wanted to go with this. Can you tell us about where you’re finding these deals, because you guys are actually finding these deals on the MLS which a lot of people say is impossible.
Jason: Yeah, most of our properties actually I think have come from the MLS. And David, I don’t know if I recognized how we were actually making that happen until you asked me that question and I started analyzing it and thinking, what am I doing? And what I’ve done is we take a look at all multi-family units, just because that’s where we really like to invest. And we analyze them top to bottom of which ones are currently on the MLS producing the best cash flow net operating income or cap rate.
And once I’ve identified those top five, perhaps, then I do additional due diligence to find out what ways can I potentially lower the price that I offer this seller where he’ll still sell it to me. What ways can I reduce the current expenses to operate the property and what ways can I potentially increase the rent to increase the income and potential cash flow? And once you identify what property offers those benefits, then that’s the one I’m targeting and going after and it’s worked out pretty well.
Brandon: Can you give us an example of that? What exactly do you mean? Give me a hypothetical or real example or whatever.
Jason: Yeah, our real estate agent that we used first before we got this fantastic real estate agent in Carrie when she got her license, we started with someone who had been in the business for 30 years and we really trusted his advice. He actually would send out a cash flow spreadsheet of every property in Utah County that was available on the market.
And so I’d go through it and identify those top ones and now I have an Excel spreadsheet that I actually throw the numbers into that to more dissect what, after all the expenses, what is my true cash flow from them. Is that answering the question or do you want me to go into more detail with that?
Brandon: Yeah, I mean it’s up to you. I’m just thinking maybe this is actually a good time where we could actually segment into the new segment of the show which we call our Deep Dive.
Brandon: So for the Deep Dive, we’re just going to go deep into one of the deals. I think my question can be answered in that in like how you’re looking at these deals. We’re going to go through, I think these seven questions, we’re going to start asking everybody every week on one specific deal. So do you have a good deal in mind, like one of your examples that we can dive deep into
Jason: Yeah, we have one last year that we sold actually this year that was a great investment for us.
Brandon: All right. So perfect. Why don’t we start with how did you find it? Let’s go through that process.
Jason: That one is interesting. We have found most of our deals on the MLS. This one was an off-market deal, actually. We had bought a fourplex from this gentleman two years prior and built a relationship with him. I knew his plan as he was getting older, we wanted to get out of the landlording business and sales.
So I tried to build a relationship with him. I was very careful in the negotiations to make sure that his needs were most important in selling it. I let him know I need to make sure this property cash flows, but I want to do everything I can to make sure you’re getting what you want. And he really appreciated that so I stayed in touch with him and I knew that next year, he wanted to sell another fourplex of his and he wanted to work with me because I was very kind about it and caring of his needs and what he wanted.
But he wanted to spread out when he was selling them obviously for taxable gain purposes and try to reduce his taxes. So we kept that relationship open and when January came around, I called him on his cell and that’s how we started the process of figuring out value and what I’d buy it for.
Brandon: All right, super cool. I love the relationship aspect of that, you know? Relationships are so, so important for real estate investors. So that’s how you found it. So how much was it? Let’s go there next.
Jason: We started at $365,000. We had an inspection ordered and actually found meth in one of the apartments. So due to one of the issues that came up in the inspection, I came back to him and said this is a real concern of ours, knowing that there’s these issues in the apartment. So he verified that in the inspection and so we ended up buying it for $356,000, was the total amount.
At the time, there were some other fourplexes pending that were under contract that could sell in the $450,000 range and so instead of using a traditional loan and putting in 25% down, this is an example of the BRRRR strategy that we used. We went ahead and found a hard money lender who funded the whole deal because there was enough equity in the property. So we didn’t have to put any of our own money in the deal and closed on it for $356,000.
Carrie: We did do a little bit of work before we closed on it.
Jason: No, that was after.
Carrie: Oh, that was after.
Jason: Yeah, we bought it for $356,000 and then immediately put a little money of our own into it.
Carrie: So that we could refinance out of the hard money.
David: So you guys got free meth and you got the price reduced. That’s some impressive negotiating. Breaking Bad Real Estate.
Jason: We made some—no, I’m just kidding. We made some profit there.
David: Did you increase your NOI through meth production? We lowered rent but we made a lot more money.
Jason: The rent income was great on that property.
David: That’s really funny. All right. Moving on. So we started with how’d you find it? How much was it? How’d you negotiate it? How’d you fund it? Which sounds like you used private money. Did you refinance it later or are you still in that?
Carrie: We did do a little bit of very minor rehab, I guess primarily just sweat equity. We did a little bit on the yard and we did paint the outside and that’s actually primarily—I guess we did fix up one unit and raised all the rents.
Jason: One of the greatest benefits of buying from an absentee landlord who didn’t live in the city was he was unaware of what the market demanded for rent. So I knew the rent amounts could be much higher. The current rents were about $650 and $700 for two of the apartments each. After we closed on it with the hard money, we put $3000 into it to paint all the exterior and did some landscaping, cleared out all the debris and garbage. Made it look a lot nicer.
And two weeks after closing, went and posted a notice of rent increase. All of them were on month-to-month contracts. They hadn’t been updated in a long time. We raised the rents $750 a month and not a single tenant moved out. All of them were fine paying that additional rent because they found that we were new owners that came in and cared about the property, wanted it to look nice and were willing to address problems inside of the apartment as well. But $3000 is all we put into it.
If you know how appraisers work with appraisals, there’s a cost approach, a comparable analysis approach, and an income approach. An income approach is what I like most because I have more control over that. So by increasing it to $750 a month, it actually appraised for $475,000 just a month and a half later. And that is more than the 25% equity we needed so we rolled in closing costs in that and only had $3000 in that deal. Six months later, we sold it and made about $186,000 on that deal and so—great.
Brandon: Wait, you sold it?
Carrie: We did end up selling it.
Jason: Yeah, we sold that one in January and made $186,000 on that.
Brandon: That’s awesome. Yeah okay, so you bought it, you fixed it up, you then refinanced it. Rented it for a little while. Then sold it and made $186,000. And the cool thing about that, too, is when you make a profit on real estate, even if you don’t live in it and you’re not getting the two-year tax-free thing, you’re also likely—again, I’m not a CPA but you’re likely not paying your self-employment tax. You’re not paying short-term capital gains. You’re paying nice, low long-term capital gains tax. Unless you 1031 it. Did you just pay the tax or did you roll it into the next deal?
Jason: We found a way to have it be tax-free.
David: Shocking. Shocking that this couple found a way to save money.
Jason: Yeah, it was great. And that deal led to an even better deal that we’re not finished with yet but we’re really excited about a 16-plex. Four fourplexes, really. But using the BRRRR strategy again. It’s just amazing how quickly things can accelerate.
Brandon: That’s super cool. So last question of the Deep Dive then is what lessons did you learn? If you could pull out a lesson or two. Maybe each of you have a separate answer. Maybe it’s the same. What did you learn from doing that deal?
Carrie: I think I learned that you can buy property with very low money down. I think that was one of the first times we had used the BRRRR strategy and seen that kind of profit. And with only $3000 of our own money, and so it was just kind of crazy realizing, you really can’t. People tell us all the time, you can’t buy real estate anymore with zero money down but we would argue you can. You can buy money with zero dollars down and I think that was my lesson, I guess.
Jason: I learned that creating wealth is so much more exciting than trying to earn a high income that then the government is going to tax me on. You know how long it takes to save up $186,000 tax-free? For some people, it takes a lifetime. I mean, I meet with people all the time and that’s a lofty goal for some people. It was amazing that not even with very much money—
Carrie: Or effort.
Jason: We could come in, do a few sweat equity items of making things look nice, giving the tenants a little more pride in where they live and being able to increase the value of a property so significantly that we could then benefit from that by selling it or refinancing.
And just that eye-opening experience, I think, is what created a lot of deals, realizing how easy it is when you understand how to utilize that process and making sure that you have a lender in your back corner that can do the rate return and finance, if you’re going to use hard money to have a way to pay it off. And if you can’t, then you know you’ll be able to sell it for a profit. I just, wow. That was so exciting for us and now we’re looking to do bigger deals using the same method.
David: It sounds like that’s really a strength of you guys, where you’re able to go in for very low money down, get these cash flowing properties and then you add in the ways you’re able to improve in the property’s condition. That’s where you get a real winner. And you can do this in any market.
You don’t need to wait for the down market that so many people are saying, well I’m on the sidelines, I’m going to wait for the market to crash. And meanwhile, you guys are making $186,000 on the deal because you’re not waiting. You’re learning and you’re executing basically.
Can you share with our listeners some of the common ideas that you’re using to get properties for such low down payments so that you can buy in any market?
Jason: Yeah, I may add to that. When you don’t have any money, that’s all we could do. We didn’t have a lot of money so we had to find ways to be creative. So all of our deals that I can think of except one, we have put 5% down or less and we’ve had to be real creative with that.
So the easiest way to get started with the owner-occupied financing using an FHA loan, but then as time progressed, we figured out portfolio lenders and then hard money lenders can help us close without any of our own money as long as we found a good enough deal as well as bringing in partners who can come in who have the money and were providing the opportunity.
Carrie: Right, and we’ve also done things like seller financing. We’ve done lease options. We’ve used commissions for down payments, things like that.
Jason: Yeah, that’s an example. I don’t know if David, you want to hear that one, but we have a credit union here locally that will allow you to buy an investment property of up to four units with 10% down. And so with Carrie being a real estate agent, we were able to negotiate with the seller a 6% commission paid out to her.
We partnered with someone that came in and got the loan and our 50% contribution actually came from the commissions that Carrie was paid. So we only owned 50% of the deal but we’re actually getting paid to own it and as long as you can cash flow on that, I’ll do that time and time again.
David: So do you have any advice for how listeners can find a credit union that will offer a product like that?
Carrie: Call around. We’ve had to spend hours calling banks, meeting with bank managers, trying to figure out the best for what we want to do.
Jason: Or speak to other investors. Go to state investment clubs locally. A lot of them will know about certain banks that offer these special products. But yeah, you can just call in. Sometimes calling in, you don’t get the right people who know that there are all those loan products. So I would ask real estate agents or brokers who are a little more predominant in your community. They’ll probably know or talk to a real estate investor at different clubs who—they’ll probably have some resources for you.
David: All right. So what comes next in you guys’ journey?
Carrie: Who knows. Buy more deals.
Jason: Yeah, we’re just wrapping up a project that we used the BRRRR strategy for again. It was for fourplexes. We bought each of those so it’s in a different area. So each of those don’t sell for as much. But we bought them for about $153,000 each. We’re going to put $30,000 into each of them and then we think they’ll appraise for $280,000 or $300,000.
And again, we’ll just do a rate term refinance or do a cash out refinance if there’s enough to pull some money out and then my next deal is actually in that same area where there’s a 25-unit complex and that’s going to be the next one once we get the hard money paid off on these 16 units. Our goal long-term, we want to get to 500 units.
We want to cash flow $200 a month per unit. Someday we’ll have them paid off and we’ll have a lot more than that. But I want 500 units leveraged and cash flow of at least $200 a month. That’s the goal.
Brandon: That’s fantastic. I love those goals. Anyway, you guys are doing it right. I just love to hear like the story of like no matter what you come across, you’re just like instead of saying oh I can’t do that, you’re saying how do I do that? How do I get through this? How do I figure out the financing? How do I find out how to do the deals?
Carrie: There’s always a way.
Brandon: Always a way, yeah. Super cool. That’s that mentality that’s going to get you whatever you want. For our listeners as well. Just have that attitude, listen to these two, and yeah. Do it just like them.
Jason: You guys know this, Brandon. You find a good enough deal. The money’s going to be there. There’s always someone willing to fund a good deal. We’re always looking. We know what we’re looking for and if we can’t buy it, which has often been the case, especially in our early years, there’s always been the solution to find someone that’s willing to help you even if you have to give up some equity. 50% of something is better than 100% of nothing.
Brandon: There you go. How do you guys separate your roles I guess in your business, like who does what, when?
Carrie: I would say it’s evolved. In the beginning, I wasn’t really that involved but as I’ve caught the vision of how crazy cool real estate is, I’ve taken on more of the agent role where I find a lot of the deals. I filter them through Jason who, he does the analyzing. He’s kind of our numbers guy. We both do the negotiating.
Jason: She makes things look pretty and I just make sure they cash flow.
Carrie: I do.
Jason: But we work together on it. She helps me manage the contractors if we’re renovating a property to increase rents. I just want to justify the expense. I want to make sure that the return on investment is worth it. So every single time we’re willing to spend any money, we just have to make sure the output in return is worth it.
So some of those examples may be putting a storage unit on the back parking lot area where we may spend $1500 per storage unit but we’ve already verified with the tenants. They’re willing to pay $75 a month to rent them out. Well that’s $900 a year. That’s a 60% return on investment every single year. It’s a great way to add value to the property but make sure that the financials are in place to cover your mortgage and continue to increase the cash flow.
Brandon: That’s cool. And when you’re talking about, you say a storage unit, you’re talking about like a shed you can open?
Carrie: Yeah, we’ve done that before. We’ve just bought sheds from Home Depot and put them on our property and we rent them out and it increases the income on our property.
Jason: We lucked out. We started out self-managing so I needed a place to keep the lawn care equipment or whatever miscellaneous items. But over time, when we turned it over to a property management company, I realized that shed does nothing for me. These tenants have asked for more storage and we’ve asked the tenant, they were willing to play $75 a month. It’s now $100 a month so we just decided to buy more storage unit for each tenant there.
And so that’s another, in this case, eight storage units. That’s $800 more a month we’re now making on those two fourplexes and just another way to increase the income that you’re making and that’s making me look even stronger to the bank or the lenders in which I’m trying to get loans. Because they’re going to verify the incomes that support the debt that you carry.
Brandon: I love that. I don’t think I’ve ever thought about just buying one of those little sheds and throwing it up. I’m thinking I have a duplex—
Carrie: And people will pay for it.
Brandon: Yeah, because like I mean, that’s almost what every company does. Like do you want fries with that? You order the thing then you add onto it.
Brandon: Yeah, upselling. Hey, the rent is this much but if you want to have storage, $75 a month. Okay, sure. No problem. Yeah, I love that.
David: Last question before we move to the Fire Round. What do you guys do to prevent people from breaking into those sheds and stealing stuff? That’s probably just like a padlock you have on there, right?
Jason: Yeah, great question. We haven’t had any problems yet. I don’t know if we have necessarily something in place for that. One thing that we have done just from a lending standpoint though, we have a copy of the keys. They have a copy of the keys. So we’re the only ones that have access to it. We’ve never had that problem, David. I hope we don’t have one and I guess I’ll talk to the attorney when that happens. Maybe I should talk to him before it happens.
David: I’m just curious because that’s a great idea. And then of course my mind went into how could that go wrong? That’s how I think.
Jason: You’re right, that’s probably something we should figure out and safeguard. I would suggest to anyone out there who is considering doing it, make sure you add that additional rent income to the lease agreement. As far as the tax man goes, you’re collecting that rent and then deducting an expense that comes from it.
So taxes don’t change any but if you add that $75 or $100 a month to that lease agreement per apartment, they can include that as the total income you’re making on the building to offset the mortgage payment. I ran into an issue where I was collecting a certain amount of rent from a property but they wouldn’t include the additional pet rent fee that I was charging per month, the additional storage income that I was making.
And so it affected my debt to income ratio, making it hard for me to qualify. So anytime we upsell an entertainment package, storage unit, rent, pet rent. That all goes on the contract in the lease agreement because then the underwriter whose qualifying me for a loan is able to use that as income we’re making on the property. Otherwise, they wouldn’t be able to use that rent even though we’re receiving that income.
Brandon: All right well, super cool, you guys. I mean, really really fantastic but we’re not quite done yet because we want to hear a little bit more specific advice in our Fire Round.
It’s Time for the Fire Round.
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All right, so let’s get to the Fire Round. These questions come direct from the BiggerPockets forum and we’re going to fire them at you guys right now. So number one, what do you think brings more value? This is actually a very targeted question for you guys. What do you think brings more value—adding on an extra bedroom in the house or adding on a garage space?
Jason: Great question. I would argue from our own experience, the additional bedroom has been more beneficial for us. We didn’t talk about this earlier but all of our units, almost all of them are three bedroom apartments or more. So those additional bedrooms are actually, we see a significant increase in the rent income that we charge, especially if there’s ample parking and we can go from families to renting to singles.
Carrie: We live in an area that has two universities. So there are quite a few university students and—
Jason: Young singles that are looking to rent. And so we could take a property that is renting to a family three bedrooms or bigger, start renting it to singles and see if the $500 or $800 a month increase in just that one apartment. So we absolutely love additional bedrooms as long as the zoning in the city and the parking lot can justify additional parking spots. I would absolutely recommend more bedrooms. It’s typically a little less expensive and I find that in our market, people are willing to pay more for that.
David: Awesome. Next question. What type of flooring do you use in your rentals? Do you use carpet?
Carrie: We use carpet. We started to go towards—we use laminate a lot now.
Jason: Or tile.
Carrie: Or tile. It probably depends, too, on what we’re doing. We have done some flips. If we’re flipping, we definitely will probably go laminate and we go carpet in the bedrooms.
Jason: If we’re planning on holding it long-term, tile may be a better option just the durability to last a little longer. So you may pay a little more upfront but you’re going to get a lot more years out of that tile generally. So keep some spare ones in the utility closet in case something breaks.
But if we’re going to hold something and flip it or do a 1031 Exchange by only holding it five years or less, we may choose the less expensive option because we’re not going to see the benefits of that tile by owning it long-term. So you need to know the objective of that property. Are you going to keep it short-term or is this something you’re going to hold long-term and that’s probably how I’d factor which route to go there.
Brandon: All right. Next question I don’t know if it applies to you guys or not, if you have experience with it, but we’ll find out. What are your thoughts on investing in a property that is located in a flood zone? I found a property I can get for about $100,000 and I think once fixed up, I can sell it in the low $200,000s. But if it’s in a flood zone, is that going to affect my difficulty or my ability to sell it? Or to rent it out?
Carrie: We actually don’t have a lot of experience with flood zones. I would think it would affect the value of the property.
Jason: We have had some flooding. It’s not necessarily something we deal with here but I would recommend—I don’t know if this is sage advice but I think I would consider—most likely, this sounds bad. There could be uninformed buyers out there that are willing to take the risk of flood and buy it for that higher $190Ks or $200K amount.
And I’m more a risktaker perhaps and if there’s a great deal like that and I can make a good profit and I’m not going to own it long-term, I’m willing to buy the property and flip it because probably in that short time period in which I own it, a flood’s not going to happen. I’m willing to take those odds, buy a good deal, renovate it, and sell it to someone who is willing to take the risk of a flood. There are going to be some buyers that are going to look at the cash flow and cap rate and not be too concerned about it not being in a flood zone. That’s just my opinion.
David: I have the same issue when I buy in Florida. There’s a lot of areas that are flood zones. I find that it won’t affect your ability to resell because that’s based on comparable sales that are also in the same flood zone. So the appraisers aren’t going to care. And most home buyers don’t care about that as much as we as investors do. Where it hurts you is that it eats into your cash flow when you need to get expensive flood insurance. That’s what investors don’t realize, right?
So if this person has that much equity, he can get it for $100,000 or she can get it for $100,000 and sell it in the $200Ks, that’s a flip property. That’s the best way that you take that because that should be owned by someone who wants to live in it. It wouldn’t make sense to keep it as a rental because your cash flow is going to get eaten up by that extra insurance. That’s a really good question though. By the way, which area are you guys buying in primarily?
Carrie: We’re in Utah. We primarily buy in Utah County but I mean, we kind of buy all over Utah.
Jason: We own some in Uintah County and Utah County primarily.
Carrie: Some in Salt Lake also.
Jason: We’ve looked out of state but haven’t purchased anything yet. But yeah, primarily Utah County. Salt Lake County, too.
David: Okay. So if I need to buy a property in Utah that’s going to cash, I’m going to call you, Carrie, to come help me find it.
Carrie: You know who to call.
David: All right, last question. I’m curious to know if there are any good loan options other than hard or private that self-employed people can use with little to no taxable income.
Jason: Good question. Self-employed, obviously that’s the hardest for traditional banks to give you approval on. Obviously going the seller financing route, the seller doesn’t care. So that’s a great option. A lease option purchase, again, sellers don’t care. Another great option. But if you have to go through a traditional lender to get approved for when you’re self-employed. What we’ve done is we’ve structured, debt to be in my name if Carrie is trying to get the loan.
So if you have car loans, credit card debt, any type of debt that is going to negatively impact you, move that over to your spouse’s name if you’re married and have a spouse. But get rid of that so that makes the underwriter feel a little bit better. And then do everything you can to look financially stronger. That means more reserves in the bank. It could mean finding additional income that the underwriter can count.
Usually when you’re self-employed, they want a two-year history. If not, they’re going to take your one-year history and spread it out over two years. So it’s making you look weaker and so Carrie’s, in her case, we’ve had her get her agent licensed. We’ve had her get her mortgage loan origination license. We’ve added her to our LLCs and spit out a K1 that helps make her income look better as well.
So Carrie started out as a stay-at-home mom and now she makes more money than I do on paper. So there’s ways to arrange it where you can look like a strong buyer and I would season the money for two months and then go get the loan. Those assets can now look like your assets. So there’s some strategy there if you have time. Those would be some suggestions I’d offer.
Brandon: All right. Super cool. All right, but before we get out of here, let’s shift one last time over to our Famous Four.
All right, let’s get to the Famous Four. These are the same four questions that we ask every guest every week. And let’s see what you guys have to say. Number one, and you can answer together or separately. It’s up to you. Favorite real estate related book.
Carrie: Jason’s our book reader. So I’ll let him answer that one.
Jason: It’s Rich Dad, Poor Dad, obviously. It changed my mindset. Investing in Duplexes, Triplexes, and Quads was the book that I read to get started because your book, Brandon, wasn’t out at the time. I’d definitely recommend your book now though, absolutely. Yeah, those have really helped.
Brandon: Well, thanks. Cool.
David: All right, what is your favorite business book?
Jason: The E-Myth Revisited probably was the book that I enjoyed most. And now there’s one on real estate investing, too. It’s a great book.
David: Brandon’s probably read that book a thousand times because every time we’ve asked people, he’s like, that’s a great book. He’s read every book in existence.
Carrie: That’s like Jason, too.
David: And they’re like Aristotle walking around in modern day time.
Brandon: That’s exactly why they call me Brandon Aristotle Turner. All right, this one’s for you, Carrie. What are some of your hobbies?
Carrie: Our kids, I guess. Running after our kids. We live in Utah so we enjoy skiing and hiking and biking and all that kind of stuff. The thing we like to do most together is probably travelling. We love to travel and have adventures and that kind of thing.
Brandon: Last question of the day. What do you think separates successful real estate investors from those who give up, fail, or never get started?
Jason: That’s a good question. I honestly think I could have been that story. I was told no multiple times, that we couldn’t get the loan. When I was 24, with that first fourplex. And I just knew that that would make all the difference. I told Carrie if we can just find a way to make this happen. And it’s funny because I tell her that every time we do a deal now. If we can just make this happen—
Carrie: Every deal still.
Jason: You have to make it work. There’s a way. There’s a solution. You have to make it work and if you’re determined to make it work, you’ll find a way to make it work. I never thought we’d have this many properties and this much cash flow. I could retire if I wanted to. I just love what I do.
We just had a vision that we had to make it happen. As you learn more about how to do things and find out that there’s different techniques and tools, there’s a solution out there. Just keep talking to people who know more than you and you’ll figure it out.
David: All right. Tell us, where can people find out more about you guys?
Carrie: We do have a website. It’s CreativeGainsRealEstate.com or they can shoot us an e-mail, [email protected]. That would be the best thing.
David: Well thank you very much, guys. This has been great. I have really enjoyed hearing your story. I think this is motivating and inspiring to a lot of investors out there who are average Joes just like the rest of us and are eager to get into the rest of this. And you have given us a ton of advice and tips on how to get started without making a million dollars a year.
So thank you guys very much for sharing a lot of this. I hope that the listeners reach out to you guys. Anybody out there that’s looking for investment property in Utah, please find Carrie because she can help you find something just like they find things for themselves. And with that, we will catch you guys later.
Jason: Thank you guys.
Carrie: Thank you.
Jason: Appreciate it.
Brandon: All right, that was our show with Jason and Carrie Harris. I love these stories of people who just figure it out no matter what. They have all these adversities against them, all of these things that are going to make it hard to invest, and like you know what? I’m just going to keep asking, how do I do it? How do I do it? How do I do it? And they did it.
David: These are the average Joe. They’re just like everybody else. There’s nothing special. They didn’t have an advantage. They didn’t start off with a small loan of a million dollars. They found out how to make things work just by sheer grit, determination, and wit.
And I love hearing these stories because I don’t think you can be more encouraged with a couple like this who just said we’re going to find a way to make this work and went out and made it happen. Like you said, they’re having amazing success. Who wouldn’t want to be in their shoes? And it just shows that real estate can work for anybody.
Brandon: That’s totally true. Very, very neat. I look forward to seeing where they’re headed in the future because a couple like that is going to go places. Super cool. All right, ya’ll. Hey, I’ll put out a request here. If you have any interest in becoming a guest on the BiggerPockets podcast and you’re listening this long into it, which means you’re die hard, we would love to talk to you.
Kind of the basic requirement is we like to look for people who have at least ten deals under their belt and have a fun personality and want to talk real estate with us for a while. If that’s you, go to BiggerPockets.com/guest. Again, that’s BiggerPockets.com/guest. And tell us as much information as you can.
There’s a spot that you can even submit a video. That increases your chances that Mindy, who is our kind of producer, is going to pick you for the show. Again, that’s BiggerPockets.com/guest. And hopefully we’ll see you here on the show at some point in the future.
Anyway, David, anything you want to close with or talk about before we get out of here?
David: I just want to say Brandon and I are absolutely committed to making this the best podcast on iTunes. We want to just crush it and make it so that there is no reason anyone would not be listening to this. So if you have some ideas, something you’d like to see more, something you don’t like or something you think would make it better, send me a message on Instagram. Send Brandon a message on Instagram.
I’m DavidGreene24. He’s BeardyBrandon. Let us know what you like to see. If it’s good, we’ll put it in there and we’ll keep making this thing better and we can get all your questions answered. With that, this is David Greene for Brandon ‘Happy Birthday Boy’ Turner, signing off.
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