BiggerPockets Real Estate Podcast

BiggerPockets Podcast 426: Using the “Sunflower Method” To Buy 18 Properties in Just a Few Years with Teacher Jon Wooten

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Many new investors find excuses for why they can’t buy properties. Either they don’t have the money, the deals, or the experience. Our guest today, Jon Wooten, had none of these three, but found a way to acquire 18 units (and become financially free) in only a few years.

By asking questions and sticking out to the local real estate investors, Jon was able to acquire valuable experience, all while gaining equity in his rental properties. Jon has his own method for finding deals and acquiring wealth, called the “Sunflower Method”, which has helped him get to the point he is at.

Now, financially free at 28, Jon has the ability to choose whether he wants to work, which projects to go after, and how he wants to spend his time. This isn’t a far away goal that only the rich and well connected can get to, it’s available for all real estate investors!

You may be working a minimum wage job, stuck in a career you want out of, or have debt. Jon shows that all of these can’t stop you from acquiring wealth!

How do you find houses? How do you find a mentor? What’s the best way to find a quality handyman? How can you make sure a house is being inspected properly. All these questions and more are answered in this episode!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Brandon:
This is the BiggerPockets Podcast show 426.

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Jon:
But if you just stick with it and keep following the process, it gets easier and easier. So year one, you might make 250 a month. Year two, you might buy three or four houses, and now you’re at 1000 a month. Year three, you got tired of waiting and buying just two or three at a time. And you might buy 10 at a time. And who knows, by year three, four, or five, you’re going to making 10, $15,000 a month just by snowballing that process.

David:
You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

Brandon:
What’s going on? Everyone. It’s Brandon Turner, host of the BiggerPockets Podcast here with my cohost, Mr. David Green. David Green. What’s up Mr. long distance real estate himself? What’s been going on with you?

David:
Well, it’s end of the year. So I’m looking to buy a couple more properties that I have to do before 2021 comes. So I’m kind of on the hunt, which is funny because I’m looking primarily in Tennessee, mostly because I believe a lot of Californians are going to leave California. And they’re going to go to places like Tennessee as our property taxes and our income tax are set to increase. And today’s guest was from Tennessee, lucky me. So we got to learn a little bit about that market.

Brandon:
Yeah. Today’s guest is phenomenal. Our guest is Jon Wooten, he is a biology teacher out of Chattanooga, Tennessee at some high school there, and the guy is like legit in terms of like understanding real estate, buying stuff, overcoming fear, finding deals. If there’s like one thing you pull at today’s show, it’s like, listen to his strategy for finding off market deals. It’s so simple yet it’s so powerful. And like, if you did nothing but implement that one thing going into 2021, you will buy multiple deals next year.
If you just did this, like this thing, you're going to love it. He bought a 10 unit in a really creative way. His first second deal was that strategy. He talks about all sorts of good stuff. Like the sunflower method today, we talked about that. We talked about the car accident method today. You're going to learn about what those two methods are and a whole lot more. So today's show is just phenomenal, full of great tips and ideas about getting started with real estate and building a portfolio of rental properties. And now, before we get to that though, let's get today's quick tip.

David:
Quick tip.

Brandon:
All right. So today’s quick tip is very simple. At BiggerPockets, we are constantly, and by constantly, I mean like every month or two months, or maybe three months, we are releasing new books. We have a publishing company who release a lot of books, and sometimes we bring on the author here on the podcast. Sometimes we don’t. So go to biggerpockets.com/store. It’s been redesigned. It looks really pretty.
And you can check out what books, maybe you haven't got in your portfolio yet, or your bookshelf portfolio that is, and you can pick them up and add them to your collection because there's probably some books you're missing out on. You can also pre-order a future books like David's upcoming book Sold, which if you are interested in being a real estate agent, you definitely want to, or be a better real estate agent or becoming one, you're going to want to pick that up. So get all that at biggerpockets.com/store. All right.

David:
Thanks for that, Brandon.

Brandon:
You’re welcome, Mr. David Green. Well, today on the show, we actually talked a little bit about my future book, but it’s way too early to pre-order. So you don’t have to do that right now, but we talked about that. It comes out next summer, but yeah, man, anything you want to add?

David:
No, Jon’s got an awesome story. And this is about the highlight maybe. So there’s something I want to add. This is a biology teacher in a state where teachers probably don’t get paid super great. So if Jon could do it, listen to what the guy’s got to say, right?

Brandon:
Are there other States where teachers get paid great?

David:
I’m sure they get paid a little better in California than they would in Tennessee. Teachers in general don’t get paid really well. So he didn’t let that stop him at all from building up what is 18 units over five years or something?

Brandon:
Yeah. Yeah. And he's got like $400,000 in equity in those properties now of the teacher's salary. Yeah. It's awesome. All right. Well, with that said, let's get to the interview with Jon Wooten. Jon Wooten, or Wu-Tang, as they say, welcome to the BiggerPockets Podcast, man. How you doing?

Jon:
Good man. Glad to be here.

Brandon:
Yeah. So tell me about yourself. You are a biology teacher. Is that right? My least favorite class in high school.

Jon:
Yeah. I’m a biology teacher. I teach physical science and a little bit of environmental science too. I’ve been doing that for three years.

Brandon:
All right. You know why I didn’t like biology?

Jon:
Why?

Brandon:
Because isn’t that the class that made you cut up on a frog?

Jon:
[crosstalk 00:04:16]. But yeah.

Brandon:
Yeah. I had to cut something open and that weirded me out. So you know what, that’s okay. I still like you, I think you’re a good real estate investor. We’re going to get into that today.

Jon:
I’m trying to dig into cutting the frogs in my classroom, but they’re hard to get.

Brandon:
Are they?

David:
Is there a shortage of [crosstalk 00:04:38]. There’s high demand in the frog industry right now for-

Jon:
Yeah. Well you ask everybody, you’re like, “Hey, where can I get some frogs to dissect?” And everyone just stares at you.

Brandon:
That’s funny. There’s some guys listening right now in like Tennessee or Georgia. And he’s like, “I can get you some frogs.” He’s going to like send you a box of like, just like hundreds of dead frog in a box just rotting.

Jon:
Like this is not what we asked for.

David:
Should we make that what this show’s about, like how to find frogs in a rough market?

Jon:
Yeah. I think they call it frog digging and they’ll stab frogs with a little fork, like a prong thing.

David:
That is a thing. It’s horrible. My mom saw that when she was a little girl, they came home with all the frogs out of string. And to this day she has a phobia about frog. She can’t see one without throwing up or even hearing the word frog. It definitely affects her. This took a grim turn.

Brandon:
I’m going to make it even more grim. When I was a kid, we had … Not more grim. When I was a kid, we had this like window in the basement. In order to have a window, it was for an egress window in the basement of our house. And so in order to do that, you had to like, drop like this like C shaped metal, six foot hole based on the side of your house. So that way you could climb out the window and then climb out of this hole and be safe. That’s how they make it safe.
So this like culvert, is that the word I’m looking for? I don’t know. It’s just like this hole in the ground next to your house that allows for a window in a basement. Anyway, frogs would jump in there and I’m not talking about like a frog or two. I’m talking like hundreds of frogs. And the only way to get them out is to drop the nine-year-old, which was me into the hole with the frog. It’s like the snakes on Indiana Jones.
And they’re like climbing over each other and just the mess of slime. And I had to pull them all out. So that was one of my jobs as a kid.

David:
That explains why you hate frogs. Just like my mom. You two can bond over that.

Brandon:
Yes. Later on we figured out you could put a lid on the little hole and then the frogs won’t jump in, but that took a long time. Because sometimes problems creep up on you slowly over time. You don’t realize that the problem that you could just easily fix it, which is what we’re talking about today, but real estate because problems creep up slowly like that transition.

David:
[crosstalk 00:06:40].

Brandon:
Thank you. Let’s get into your story and talk about the properties you buy, the real estate that you do. So biology teacher, Mr. Wooten, is that when they call you?

Jon:
Yeah. They call Wooten, some of my Hispanic kids say Mister. They say Mister.

Brandon:
Mister. Okay. All right. I was going to call you Wooten. Mr. Wooten, tell us about yourself. How’d you get into real estate investing from being a biology teacher?

Jon:
So it started before biology, before I taught biology. I was working at Starbucks actually way back when I was 17, 18 years old. And I would sit there and I would hear people talk about real estate. I’d have a lot of people come in and talk about real estate. So it started peaking my interest. And then I had a buddy, he went and bought two houses and I was like, well, how can I do this? I’m 18 years old. And first thing he said was build your credit.
I didn’t love that answer, but that’s the next three years of my life, like three or four years, just build my credit because if you don’t have credit, no one’s going to lend to you. So the first thing I learned. So fast forward a few years, I discovered you guys on my way to my first real job. I was working at a bank, BBNT as a teller and on my way to work, it’s about 30 minutes. I would listen to BiggerPockets religiously.
And I got to the point to where I was like, I know that this is an investment vehicle of some sort. I know that people make money in it. So I’m just going to try to figure it out. And I probably listened to episode 50 up to episode 200. I contacted Devin MacLeish. She was on episode 170 something, I contacted, I think one of the guys you’re working with and Maine or Maryland and like John-

Brandon:
Ryan Murdoch, maybe, I don’t know.

Jon:
He ran me through some numbers too I’ve talked to him. And I just started calling all these people, just picking their brain about how they got into it. So I was listening to all these podcasts and I was making maybe $12 an hour and I just started listening to it and they got me interested. And then I would go back to Starbucks at night and I would sit down and watch your videos and I would work it out. And you say, “All right, take 30 minutes, go find a deal and practice a deal every day.” And I would practice on my computer, see if it made sense. And one thing led to another and I started talking to people about actually getting deals.

Brandon:
Yeah, let’s go into the first deal then. First of all, did you decide, obviously you’re in Chattanooga at this point, you’re there now, but were you there then?

Jon:
Yeah. All of this started in Chattanooga.

Brandon:
Okay. I love Chattanooga, but so you decided to invest there. What was the first property like? Did you started practicing started running the numbers? How’d you do the first deal?

Jon:
So a few things I started doing, I would go to the MLS and I would try to find deals. I would go walk around the houses, even though I knew I couldn't even buy them at that point, just to kind of dip my feet in. And my wife, my now wife, she was babysitting for somebody who had a few rental properties. And I had met with him before. Just kind of asked him about it. But I went and talked to him a little bit later on. I said, "Are you still into rentals?" He said, "Yeah, you still looking for some?"
I said, absolutely. And he said he has 10 units, a four unit and a six unit right beside of each other. And if I wanted to, we could work out a deal to where we’ll owner finance on. It won’t cost me that much out of my pocket. And that way we’ll let me get started. And 10 units to start out scared me pretty bad. So he said, “Go drive by and see what you think.” I go and I drive by them and they’re rough. There’s nothing like too pretty about them when I first get there.
He showed me an eviction. What it looks like, we walked into one house. And you could tell, someone was mad. They had holes all up in the wall. There was furniture thrown everywhere. And he said, “This is what it is. Sometimes if someone gets evicted, they get mad. Sometimes they’ll just leave it. And sometimes they’ll clean it up and be cool about it.” And I told him, I was like, I’m in. So I ran my numbers and after everything, I was going to be making 800 a month, like plugging it in on the calculators.
And I thought to myself, that'll do it. If I can take $800 a month and somehow save that over the course of a year and start to snowball it, that's what I would do. So, that was my first deal. So we did an owner finance and I managed them for a year and a half. I would give him a check at the beginning of every month for how much he required, which he needed seven percent on a 30 year loan is what we agreed to. And once we decided those numbers, I would just go and write him a check for that.
I would go and pay the utilities. I pay their utilities and the rest was my profit. The first five months. That was what he wanted for me. He wanted to see that I had skin in the game. So he just gave me $1000 a month for the first five months. I was like, okay. So every profit I had, I just gave it right back to him.

Brandon:
Interesting. So that was almost like your down payment was the first, what? Five months you said?

Jon:
Yeah. To him.

Brandon:
To him. Yeah. You just gave him the profit. That was like your down payments. Now you have something to lose. I just didn't mentioned like similar, my very first apartment I bought, I did seller financing and I didn't have the money for it. So they let me like lease option at like master lease option, which is where I rented it from them basically paid them the rent that they wanted. The same thing.
And then I didn’t actually buy it. So at this point for you, did you own the property legally or it was still in their name? You were basically doing what I did. Like you’re renting to own it almost.

Jon:
Exactly. So for a year and a half, I’m making payments to this dude. It was really nice because anytime I had a problem, I could call him. Because he doesn’t want his properties to go under or fall apart either in the event that I foreclosed and stop paying him. So I’d say, “Hey, I’ve got somebody who won’t open their door. They moved out.” And I’m like, he don’t have a key. We’ll go kick it in. Okay. So I’ll go and kick it in. I figured that out.
And then, “Hey, I’ve got an eviction to do. What do I need to do?” He said, “Meet me at court on Wednesday at nine.” I was like, okay. So everything felt like trial by fire. But anytime I had an issue, I would call him. He was really good mentor to have through this whole transition process.

Brandon:
Yeah. It’s such a neat topic because, one, how shockingly similar it is to mine. Because I worked at a bank and my wife worked at Starbucks actually. So, I worked at a bank, and then I bought this 24 unit from the same sort of situation. I bought it on that kind of lease option-ey thing for a while, until I had enough money saved up from the cashflow to be able to use that as my down payment, essentially.
But more importantly, it was the mentorship of that person because here’s what’s so cool about the strategy. Now some people listening to this might go, why would somebody do that to you? Why would they work with you on that? That sounds a lot of work for them. It’s because like you said, they don’t want the property back. They don’t want to just sell it to you and then sell or finance it. Do they want monthly passive income forever.
So it's in their best interest to train you over time to be good at this so that they don't ever get the property back. I love that idea. And it's low risk for them. They don't have to go through a foreclosure if it didn't work out the first few months, because you just pan the keys back to them and be like, well, it didn't work.

Jon:
Exactly. And they say bye-bye.

Brandon:
Yeah. It’s a cool way-

David:
It’s very similar to how businesses work. When a business is sold from one person to the next that is somewhat big, the new buyer makes some of the old people stay on for a period of time to help them get the thing off the ground. And it’s a great strategy. It’s why businesses use it. It works with real estate just the same.

Brandon:
David, are you saying that real estate is like business?

David:
Oddly enough, it [crosstalk 00:13:54]that way.

Brandon:
This is especially true with multi-family. Because multi-family is especially made for like a bit and people treated it that way more often like treated real estate the way that if you were to go buy a McDonald’s, that’s basically what you’re doing here. So you could go and work at the McDonald’s for a while as a general manager to learn how to do a good job at it. And then [crosstalk 00:14:12]the property.

David:
That makes sense. That’s exactly right. Instead of let me just buy a McDonald’s tell me everything that there is to know about running a McDonald’s and I expect that I can walk in there on day one and do it super good. And if I can’t, well, the real estate is scam. John, I’m sure you’ve heard that yourself.

Jon:
Yeah. One of the things that I’ve noticed is like, if I go and explain to my parents, like I told my parents, I was like, this is what I’m doing. I’m buying this 10 unit. I’m going to manage it for a year and a half. And they said, “Why are you doing that? Why would they sell you that?” It sounds like that’s what they said. It sounds like a scam. Why would you? And they’re like, you’re not going to own it.
But I think what I’ve come to learn. And I guess this is, I used think that nobody would ever tell somebody their secrets in real estate, because you would just feed your competition. That’s what I used to think. And now the more you get into it, there’s so much property for everybody that they want to in a weird way, give back, train you right. You do have some people who don’t. But …

Brandon:
Yeah. By and large, most people I’ve ever met like older investors, they like, because their kids and their grandkids and their nephews and nieces, they don’t care anything about real estate. So you show up to one of those people and like, you’re interested in what they’re doing and you’re excited and you’re passionate, almost everyone I’ve ever known will want to pour into you.
So people complain, “I’m young. I can’t invest. Why would somebody take me seriously? I’m young. I’m 20 years old, 22, 25.” That’s your greatest asset. Go use that. That’s what you have. So good, man.

Jon:
I would kill for somebody to come up to me. He’s like 22, 23 and say, “Hey, can I manage your property? I’ll pay you.” Please. Please.

Brandon:
100%. Yeah. I think when I started, I had Kyle, his name is Kyle. And he was like my mentor, but it wasn’t like an official thing. It was like, we became friends and I started managing, well, “managing” his properties. He didn’t want to deal with the problems anymore. So I did all his maintenance, all his work for him. I turn over his units for him. I’d show units when he didn’t want to show him.
And like, I took all of that work off his plate and he paid me. I hope he’s not listening to this, but he paid me almost nothing. But who cares? I’m looking back now. It took me actually way too long to … I got so much experience and I had no risk, zero risk because it was his property. So if I didn’t get it rented and I did, I did a really good job.
And so later, like he’s helped me a ton now. He’s like lent money and we’ve been good friends since then. But from both sides of that equation, it was an awesome relationship. So, John, how did you find the guy? You might’ve mentioned that, I might have missed it, but how did you find that guy that you bought that from?

Jon:
The 10 units?

Brandon:
Yeah.

Jon:
So this is my wife. She was babysitting for this lawyer in town. And I know in his lawyer and the guy who I bought it from are partners. So I had been talking to the lawyer, anything the lawyer says to me, I jot it down. It’s gold. And his partner owns an insurance company here in town. And his partner is the one who I mostly dealt with. The lawyer, he kind of stays out of the real estate management side of things. But …

Brandon:
You know what’s so funny about that? I just said how similar we were because I had a bank job. Kyle, my guy, his partner was a lawyer and he was like, my lawyer guy. It’s exactly the same. I’m pretty sure you and I just have identical stories. [crosstalk 00:17:20].

Jon:
We’re on the same wavelength. And then Devin MacLeish, that’s what got him. That guy who was a lawyer. He managed some Home Depot, but yeah. Lawyers seem to get into it.

Brandon:
Yeah. Crazy, awesome, man. All right. So you bought the 10 units there, managing yourself. What did you learn? I want to know from that experience, in other words, like, as you’re going into that, was it harder than you thought to manage all these tenants going from zero to … going from zero to 10 is pretty awesome I’ll say, some might say crazy, but what was that like? What did you learn? What was easier than you thought? What was harder than you thought?

Jon:
Terrifying. Just absolutely terrifying. Because it’s easy now when you look back at it, you go, you just get another tenant, you just did this. Back then if I had a tenant call me nine, 10 o’clock at night and they say, “Hey, my toilet’s not working. This, that, and the third.” Well, they just moved in two weeks ago, they’re toilets doing this. They’re going to bail on me. I’m going to lose $500 this whole month. You kind of think yourself into a storm.
And the thing that I learned is that if there’s a problem, there’s a solution, and it’s never as bad as you think it is. I’ve had water line breaks. I’ve had heaters go out. I’ve broken windows, doors, cops. I’ve had somebody die at my properties once. I didn’t know that person, but it’s always something that gets handled and it’s never quite as crazy as when your mind makes it.

Brandon:
That’s one of those clips I’m going to take and throw on my Instagram later of you saying that, because that’s so good. I want everyone to listen to that. There are problems. Like they do come up, but they’re never as bad as you think. You talk yourself into this drama. You think it’s going to be much worse than, you don’t want to manage properties. Like this uncle John had properties and he lost everything. Like everyone’s got like the story and you get scared going into real estate. It’s terrifying. But then there’s an answer to everything. Every single thing.

Jon:
I can relate this, going back to biology, your prefrontal cortex is going to allow you to see things in the future. We’re just so good at it that we make it worse than it is. And the minute that you can just kind of shut that off. And there’s a reason that you don’t hear that many people going out of business with real estate and you hear a lot of wealthy people who are in real estate.

Brandon:
That’s such a good point. Yeah. What do they say? 90% of businesses fail in the first five years. I’ve never heard that quote about real estate. I’ve never heard anybody say like, yeah, 90% of all people who buy rental properties lose their property in the first five years. That’s not a thing.

David:
But you rarely hear about someone that steps into it in the first year becomes a millionaire. It's like an inverse relationship. So I think that's why a lot of people don't get into it because it's a get rich slow game. You're committing to the longterm when you get into real estate investing, a lot of people don't like it. Another area where I've seen a lot of people that were really good at this start was, they were a CPA or some form of accountants. And they were looking at their wealthy clients and seeing they all owned real estate. That was another like light bulb moment, like you guys' lawyer thing.

Jon:
I’m sure Brandon probably saw this when he was at the bank, you have some wealthy clients come in. And if you talk to them, you find out who owns businesses, what kind of checks they’re dropping off and you find out real quick.

Brandon:
Yup. Yeah. Very much. Yeah. I mean the few people I knew were real estate investors and they were doing well. Interesting enough, actually, one of the people I was closest to at the bank, like the customers that I became friends with, sort of, he had a golf business, he sold golf supplies online. And this is before I knew anything about internet marketing and working online, like people made money online. And that blew my mind.
I would say that is probably what got me to even start a blog originally, which led me to start this podcast with Josh back in the day. Is because like this guy, his biggest problem was he couldn’t pay off his credit card fast enough because he had like a $50,000 line on his credit card, but he would buy 50,000 worth of material and then he would sell that right away. But he couldn’t do it fast enough. So his card kept getting maxed out. And he was like coming in-

David:
Good problem.

Brandon:
Yeah. It was like such a good problem to have. And so we had like three cards and I was as the guy trying to help him, this banker at the bank, like trying to get him more cards and trying to get him a bigger line of credit. And I was like, I want those kinds of problems. That’s the kind of problem. My problem was like my tire of my car blew out on the way to work today. Those are the problems that …
I’m going to say, like wealthy people have different types of problems. And so I want the kind of problem that says, I can’t pay my credit card bill fast enough because I’m making so much money and spending so much on supply. That was so cool. And I remember just thinking over time how amazing that was. And I never got into necessarily like the internet, eCommerce business. But just entrepreneurship and business in general. Yeah. You learn a lot from those kinds of people.

Jon:
It’s a revelation in a very strange way in like, because you find out that you’ll talk to people and they say, “Hey, I make X amount of dollars or whatever salary.” And then you might talk to somebody who they’ve never had any bit of education and you can tell by talking to somebody, but then they might own a multi-million dollar business. And that’s how they did it.

Brandon:
Yeah. What I actually think that always encourages me and I don’t want this to sound mean, but it probably will come out that way, is I know a lot of people in my life, even before I got into real estate who, yes, were not that intelligent. I mean like my friend, Kyle, he’s super smart. He’s a pilot and was like wicked smart. But then there were other guys that I know even today, like that I’m just like, you’re like a few, what’s the quote, like few [crans 00:22:40]short of a crayola box or whatever.
But own like six million dollars of real estate. And it’s always like just reassuring. And you’re like, okay, you don’t have to be the top five percent or the top one percent of intelligence to figure this stuff out.

Jon:
You just have to not give up on it in. Period.

Brandon:
Yeah. That’s so good. So you did not give up then I’m assuming. So after the 10 unit, what happened?

Jon:
So before I even closed on the 10 units, so we had this timeframe of between let’s say now and 18 months, probably around the 13, 14 month mark, I meet another guy I’m working at FedEx at this point and I’m managing the properties and I meet this other guy who I saw his phone or his phone number on a rental property outside of a house. And I said, “Okay, we’re going to talk to him and start putting another one in the pipeline as it were.”
And I ended up buying a house from him for 65,000 before I closed on the 10 unit. So not three months later, I go and close on the 10 units after buying this whole 65,000 and that $65,000 house doesn’t make me be $80 a month right now. The guy has been in it for years. He’s actually my handyman, but I don’t go up on his rent. I leave it there and he just does its thing, but that was my first official one. And then three months later, I closed on the 10.

Brandon:
Okay. You sign for rent sign and you called it. Is that what you said?

Jon:
Yeah.

Brandon:
That’s such a cool strategy.

Jon:
If I see, and I tell my friends this, because I have friends in Charlotte, North Carolina right now and they asked me like, “What about this? What about this?” And all I keep telling them, I say, “Go make phone calls. Just tell them you want to pick their brain. Tell them you want to ask them how you can get started. This, that, and the third. And at the end of your conversation, just ask them, do you have any problem properties that you want to get rid of, any headaches?”
And you might not find anybody, but I’d say probably three out of 10 times, you’re going to find somebody who wants to sell something. And then they know the game. They know how much it’s worth. They know that you need to make your money on it. So they’re not ridiculous with it. But yeah, that’s how I called him and I started asking him just like, I’m talking to you now about real estate, as much as I could get like filter feeding as much.

Brandon:
That’s so good, man.

Jon:
So I would call a phone number. Anytime I see a phone number, I would call it.

Brandon:
That's such a good tip. Yeah. If people did nothing but that, just that one thing and made that their whole thing for the year, you will buy property that way. Every landlord, pretty much every landlord that I've ever known has properties that if they were asked and pushed on it, they'd be like, yeah, I'd probably sell that one. I don't really like that one. Or I've already maximized my return on that one.
Like have those conversations. In other words, I said this at beginning of the show, when I tied in a terrible analogy to this, but this is a much better analogy. Like there’s frogs creeping in these holes, in these investors lives. Like this property is like just continually causes them a headache. And they don’t realize that their hole is getting filled up with frogs.
Until you’re like, “Hey, do you have any holes with frogs in it that I can go and jump in and clear out for you?” And they’re like, “As a matter of fact, I do.” And then they’re like, let’s talk about it. And like you said, they’re not going to be crazy as much as like … I feel like homeowners are almost sometimes more irritating to work with because they have these completely unrealistic expectations of what their house is worth. But [crosstalk 00:25:46].

Jon:
I’ve knocked of a few people’s doors, I’ll knock on their door and, “Hey do you want to sell your house?” “Come on in, come on in.” And we’ll start talking about their house. It’s a two or three bedroom. I’ll do my numbers and I’ll call them and give them my price. And I’ve had two people just get mad at me on the phone. And I’m like, “It has to make money. I’m sorry, lady. That’s the way it is.” But what I did with the home owners is different.

David:
You’re looking for the homeowner that’s in pain, which is why you’re calling landlords. You’re looking for the one that’s like, I don’t want to own this. This is very intriguing. What do we have to do? And when they’re not in pain, that’s the first sign I have, just don’t invest into it. That’s a mistake a lot of newbies make with off-market deals is they take someone who loves their house, who cherishes it.
Who wants to show you the hue of paint that they chose because it fits the accent wall just right. And they’re trying to convince that person to sell their house for half of what it’s worth. And they get frustrated. They’re like, how do I get them to sell me their house for cheap? And the answer is you don’t, you just move from that person. You go look for the one who doesn’t want to own their house and is looking for you.
And that's the one you put the time into. And that's where you really leverage. So is that something you've found? Have you noticed in your strategy to acquire new properties, that you found a niche where you can find people that are in pain?

Jon:
Yeah. Especially the type of owner who might have 50 to 150 units is usually the guy I’m trying to talk to. They always have a 40, 50, $60,000 house they want to get rid of. It’s always within the same area. At least what I’m targeting for this in the same area. I will even ask if it’s in … I have a house on Berry Street and I’m asking like, do you have anything near Berry street?
Because I’m trying to buy up this whole little section of part of my town and not have to also drive to go collect my rent all the time too. And yeah, what you’re saying, if you meet somebody and they have all this invested time in their house and it’s their baby, they’re not going to let it go for what’s reasonable. It’s not happening.

David:
I love what you said is you’re looking for a bigger investor who’s got a lot of properties, they’re busy, and you’re asking them basically like, “Hey, I see you got a classroom full of 40 students. Which one’s causing you all the trouble? I’d love to take them into my class as a schoolteacher.” Because when they’ve got two properties, that problem house is still a cherished part of their portfolio.
When they’ve got 50 to 150 units and this same address is popping up in their inbox. Trust me, I know what that feeling is. I will sell it at a loss just to be done with the problem. But that’s what you want, is you want somebody’s problems. So that is incredible advice. Everybody, please take that serious. When you meet that investor, who’s like, “I’ve got 200 units.” Don’t think, “I’ll never be able to talk to them.” The next question should be, are there any that you don’t want any more than I can take off your hands?

Jon:
They will always say yes.

Brandon:
Yeah. That’s a good tip. So, what came next? You bought the house, the 66 [crosstalk 00:28:37].

Jon:
Yeah. I got the 65K one and then I bought two other houses from the same guy, not the lawyer friend. This is the guy who I called. I bought two houses at once from him. I think I paid 90 for total, 90 for those two houses, one rents for 575 and the other one rents for 650. So I bought those two. That was 15% down. Also, I know as I’m talking, just if you guys are listening, just make sure you find a bank that you’re comfortable with because it’s weird realizing this.
But you think everything so set in stone, everything so paper, you have to do it, have to do it this way. And you find out that certain banks can work with you. I pay 15% and everybody told me I’ll never get below 20. I had other banks and they’ll go and talk to their loan officer and say, “Hey, this Wooten guy’s back again. What can we do?” Because like, let’s say you want to buy a property and they have to approve that you can even pay for that loan.
Well, now they might have a meeting the people at the bank and decide on if they want, if they can even bypass their rules to give you that loan. And if you have a good relationship with them, they’ll work with you. So I bought those two and then, those are working.

Brandon:
So what do you have now total? Tell us what your total portfolio.

Jon:
I have 18 units total, and I’ve got 11 that I’m purchasing within the next nine months. So I’ll have what, [crosstalk 00:30:02].

Brandon:
Well, what do you mean? They’re under contract? Are you doing the same kind of lease option thing? Or like, what are you doing for those?

Jon:
So these 11 units, they’re under contract. There’s this guy, he almost looks like a biker. He’s big, he’s bald, he’s tattoos everywhere, nice as can be. But he owns, I think three or 400 units out here. And I bought four units from him about five months ago. And he said, “Hey, I’ve got 11 more if you want them.” And I was like, yeah. So I drive over. He told me the price and they need a little bit of work, but people they’re rented. It makes money all day.
So I told him, I’ll take it. And he said, we wrote it on a piece of paper. I, John Wooten I will buy this address by September 1st, 2021 for no more than this amount. Here’s $1000 down and that’s the entire contract. And so I’d take that to my bank and we start locking everything in. And my goal here is to not use any money that I’ve saved. I use a little bit, but I’d rather start to use the equity from my previous properties that will help me pay for this 11 unit. It’ll be the biggest one I’ve bought so far. So try not to dig too deep on my cash.

David:
That’s an example, Brandon, I often give where, when you do well buying the first couple of properties that grows and then those buy you the next wave or the next round. And then now you’ve got more cashflow coming in from that one that was bought for with the equity from the first ones. So now that you can save faster to get the third, which is why real estate investing goes really well when you take time, for sure. It’s something you have to. You want to comment on that?

Jon:
Yeah. I do. The first year to three years, it’s going to be slow. I know that I, in a weird way, was lucky, but just like what you guys say, everybody’s lucky in their own right. And that first 10, I was like, any money I take is going to go straight into the next property, and any money that I make from my other houses are going to go straight into the next property.
And so your first couple of years, you might make a couple of single families or quad, you make 500 a month, maybe 1000 a month, maybe only 250 on your first house. But if you just stick with it and keep following the process, it gets easier and easier. So year one, you might make 250 a month, year two, you might buy three or four houses. And now you’re at 1000 a month with everything. Year three, you got tired of waiting and buying just two or three at a time. And you might buy 10 at a time. And who knows, by year three, four or five, you’re going to make 10, $15,000 a month just by snowballing that process.

David:
And to compound that I’ve found when you’re buying single family houses, which is where the majority of people get their start, they don’t crush it with cash flow. And I’m going to ask you in a minute why you feel single-family houses don’t, like what expenses come up there, but they don’t. However, they’re much easier in my opinion, to build equity with. You can get fixer uppers. You can make them nicer. Now they’re worth more.
So really the best strategy I’ve found for pushing your way into the market and building cashflow is to start with some fixer upper single families, use the burn method to kind of keep the capital going and build your equity. Then exchange that equity into something that will cash flow better. That’s 100 times better than just saving your money and going right after the cashflow because it takes so long to buy those bigger properties. Is that similar to what you found? I saw you smile.

Jon:
Yeah. Because there’s a game called Plants vs. Zombies. So have you ever heard of it?

David:
Yes, I have.

Jon:
So the whole point of the game, you want to get as many sunflowers as you can so that you can start generating because the sun points basically give you more weaponry plants. I know I’m going off on a tangent here.

David:
No, trust me. There’s a lot of first responders out there working 3:00 AM shifts that are very familiar. They’re [crosstalk 00:33:37]with your example.

Jon:
Well, my whole thing is I’m just going to play life like a video game. And if I can keep saving up my sunflowers, I can go eventually buy the 11 unit that’s going to make me 3000, whatever dollars a month. But I couldn’t do that in the beginning because it sucks. You have to just take it slow in the beginning. But then you realize that time that you went into it is not that bad. Do you really want to learn how to solve 30 units worth of problems in a year? I don’t think you do. Because it’s a lot.

David:
That’s a great point. Yeah. You have a great perspective on this, John. I love it. And I love the sunflower method. Sum that up for us again for everyone that heard that. So they can walk away seeing how you look at it.

Jon:
So the sunflower method, that’s what we’ll call it.

David:
You’re going to write a book called the sunflower methods. You heard it here first folks.

Jon:
The sunflower method Plants vs. Zombies. Imagine zombies are coming in to your, no, I’m going to ruin it. Sunflower method, just save up a bunch of sunflowers so they’re always producing for you. You always want to have something producing for you.

David:
The zombies in this example would be the things you’re tempted to spend money on that’s not real estate that’s coming to steal your wealth. Yeah, exactly.

Jon:
I want a car that’s going to be $300 a month, that the zombie coming up. Well, instead of just taking the $300 a month I got from a promotion, why not take that money, buy a house that makes me 300 a month for the rest of my life. Also pays down a loan. Also allows me to dip into the equity of the home and then do the same things with it.

David:
That’s exactly right. And let those weaponry plants that you said attack debt, which would be zombies too. Now they’re making money for you. So you’re not just working. I think that’s brilliant. So let’s stay on this theme. When it comes to owning like usually smaller properties, what do you find are the zombies that will attack your profit with real estate investing when you’re kind of dealing with like the single family or two to four units space?

Jon:
It’s always the tiny things. It’s a sink. It’s a bathroom device or a bath tub device. It’s the spigot on the actual shower might go out and those are things, if you don’t grow up and see them all the time, those are the ones that will surprise you because you might go one month and spend $100, just a little $100 on your plumber to come out there and for him to fix whatever’s on the back of your commode. And then the next month comes, a tenant says, “Hey, I’ve got an issue. My sink’s leaking.”
You spent another $100. So then you either start deciding, okay, what’s worth my time? Do I need to go out there and learn how to fix the sink? Or do I need to go out there and learn how to fix a toilet? I’m going to go fix the sink and then have somebody else do that. But it’s always eating into a … it’s always there. You almost have to plan for it, but there’s always going to be a problem that’s within the properties themselves.

David:
When it comes to that spigot in your experience, what would you say those spigots typically costs for just the part?

Jon:
Just something like that. I mean just the part, you’re looking at 50 to $60 on a cheap one, just getting that piece out there.

David:
And then when you got to call a plumber out there to go install it, now what’s your total bill usually going to be?

Jon:
If you don’t know him, you’re looking at 200. If you do know him, he might be out there and charge you 50 bucks. So you’re 150.

David:
Well, if the part’s 50, plus the 250 you got to pay for the plumber, now you’re at $300 for a $50 part.

Jon:
There goes your entire month.

David:
That’s exactly right. And tenants never think of it when they call in to complain about something. What they see is, I’m paying 900 bucks a month. He can afford 50 bucks for this part. They don’t realize out of that 900, only 100 of it was cashflow. You just spent 250 on that part. You just lost three months of cashflow from that one unit because of that one call.

Jon:
And that’s the part that might bother somebody who’s new. Like let’s say you go to buy your first property, four months in you’re like, “Hey, I finally saved a little bit of money.” Something like that happens. Well, now you start to get in that mentality of owner might give up. Maybe this isn’t worth it. But in reality, once you have five or six units, those start to offset each other. But I want to make sure nobody gives up just from-

David:
No, no, no. But there is a way that you’ve … what I was getting at is, it’s usually the labor that costs more than the part. When we just look at the bill, 300 bucks to fix that thing. But there’s a way that … you really can’t get the part a lot cheaper. Maybe if you designed some way to import it directly from China, you can save yourself nine dollars or something, but you can go after the labor.
And I wanted to hear from your experience running a tight ship like you do, what are some strategies you put together so that you don’t have to call a licensed plumber every single time and spend $300 for that spigot?

Jon:
So some of the things, what I first started doing is I tried to, if I can, I’m going to learn how to fix it. One, because it’s a game you have to want to some reason to solve a problem if you don’t. But anyway, I want to first, can I fix it? And then two, if I can’t, can I get somebody who does it regularly for me at a better price, like getting a good handyman or along those lines? But I still replace my windows.
I will go out. I’ll find the things that someone might cost or might charge me a lot of money to do for a door jam, like I’ve said. I’ve kicked in a few doors. And I know it costs me $130 for my guy, part and him to go out and fix that door. I know he can go to Lowe’s right now and get the whole thing done for 25 bucks. I’ll go pick it up. I’ll tear it out with my hammer. I’ll tap it in.
Now, obviously there some problems that I don’t want to tackle because they start to get too complex or they start to get … they’re different level of skill. So that’s where you want to have a good handyman who you’ve developed a relationship with. Maybe you’ve talked to a few different people. You’ve looked online, you’ve tested a few out. I’ve had a lot of bad handyman too.

David:
Okay. What are some advice that you have for listeners for what you can do to find the right handyman?

Jon:
Facebook’s great. Asking around is great. Honestly, going into Lowe’s, I will find people all the time. This happened with my outlets. I was going to pick up about 15 outlets the other day for one of the units. I wanted to replace all of this unit. And I saw one guy, he had some electrical boots on and he was sitting there looking at some of the outlets and I said, “Hey, are you an electrician?” He said, “Yeah, I am.”
And I started talking to him, I got his phone number. And then he ended up, I talked to him and we made a deal. He went out and replaced all the outlets for me for $100 for the entire unit. So just always asking around, always trying to find that relationship.

David:
So you’re sort of lead-generating for handyman, so to speak.

Jon:
Yeah.

David:
Yeah. Which is brilliant because that’s your biggest expense when you’re owning these properties. That’s what crushes you. Brandon, what have you found? You’ve got a similar size portfolio of smaller units or a large portfolio of similar type properties. When it comes to this whole question of like, how much does it really cost to manage them, what’s been your experience?

Brandon:
Yeah. It's expensive. This is my problem with a lot of turnkey companies. Like there are some good turnkey companies out there, but the biggest problem I have with like the companies that are, and those who don't know what turnkey is, are companies that will sell you a completely fixed up property with a tenant in place. They'll manage it for you. And they claim you're going to make all this money from owning this rental.
And sometimes they’re right. Sometimes there are, again, there are good companies out there. I don’t want to say it’s not. But a lot of the company I’ve looked at their numbers. They’re like, oh yeah, we already fixed the property. You won’t have any repairs. And I’m like, yes, you will. And like, you’re not going to have to replace anything for 10 years. No, you will, you have to always be replacing things. You’re always fixing things. You’re always …
So a couple of points on this. One, I got a new book coming out next year. It's on multifamily. I wrote with Brian Murray and we talk about a lot in this book. There's a thing called like fake cashflow. And then there's pure cashflow, just like there's like gold and then pure gold. Purified gold has gone through the fire. It's gone through a tremendous amount of like fire to release all the impurities. And what you're left with is purified gold.
The same thing is true with pure cashflow is like, this is your actual cash. Like not your lying cashflow, not your fake cashflow, not your optimistic cashflow of what we all think. It’s like, this has gone through the fire. So my encouragement to people is when they’re running their numbers, don’t do what some turnkey providers do. And just be like, “Oh yeah, you’ll never have repairs. You won’t have to fix things ever.”
I assume, and again, this completely depends on the age of the property, the condition of the property, the area you live in. But I typically assume between five and 10% of whatever money I collect is going to go out in repairs, and another five or 10%, I’m going to set aside for future replacements, which is what we call a CapEx. So if it’s an older house, I might set aside a total of 20% every month just for those two things, repairs and CapEx.
And if it’s a newer house, I might go more like 10% total, but don’t kid yourself, anybody and think that you’re going to get away with not having to repairs ever. You might get lucky. I have a property, a five unit that I think I’ve had three calls on in the last seven years. The five plex was built in 1870 or something like that. Everything about that property says it should have a lot of problems. It just doesn’t.
I don’t know why, it’s just been well taken care of over the years. But I have like new houses built in the ’70s that I have a problem every single month. There’s something breaking on it. So you just never know. But if it’s across your portfolio, I just know that I’m going to lose between 10 and 20% to repairs and CapEx present.

Jon:
100%. Even on, when I look at my Excel spreadsheet and I’m plugging things in, I don’t even collect. If I’m at 100% occupancy, I still don’t collect 100% of that money. You might catch somebody who’s missing 20 bucks one month. And are you going to kick somebody out over 20 bucks? It keeps happening. You have to discipline, but you don’t want to kick somebody out over $20.
And then what you’re saying, and it goes back to the videos you use to put on YouTube, how to analyze a deal. You do have to factor that in because one house I bought, I had a roof. My first year, the roof had to be replaced, cost me 10,000. And you do want to have that implemented in, or if your rent is … or if you’re making $700 a month, or if you’re charging 700 a month and let’s say your total expenses are 400, your total expenses are more like 500. Just go ahead and assume that there’s something you can’t see that’s going to happen.

Brandon:
Yeah. And even if you go, you might go six months without anything. And then you get hit with something big that’s six months worth. And so it’ll average that.

Jon:
That’s what I was going to say. It all comes in waves. I didn’t have an eviction for a year. The past year didn’t have an eviction. Out of nowhere, had three.

Brandon:
Yeah, it happens. And so if you don’t assume for those things, if you’re not calculating pure cash flow, if you’re trying to do fake cashflow, which is like rent minus mortgage, it’s not going to work out. You got to get it through the fire. It’s actually one of the reasons why I chose mobile home parks, not that they’re the end all be all there’s other asset classes too that avoid repairs.
But all the mobile home parks that I buy, the tenant owns their own home. And the reason I went for probably more than every other feature about mobile home parks, the reason I chose them is because tenants own their own home, which means I don’t have that nitpicking repair cost every single month. That just drove me nuts. And I was like, how do I avoid that? Well, like self storage, mobile home parks, like land, those kind of avoid the repair stuff.
And now there’s other things that we have to fix and repair. And there was a lot of things I didn’t expect. I’m not saying there are no expenses with mobile home parks. There’s a ton of them. But anyway, that’s why I built whole open-door capital. Like my whole fund is because I’m like, I just got tired of dealing with the nitpicking of little repairs. And I [crosstalk 00:44:45].

Jon:
I heard so many people switching into self storage. That’s been incredible.

Brandon:
What breaks in self storage. You don’t have any, no toilets.

Jon:
Concrete and metal.

Brandon:
Concrete and metal. It’s an amazing thing. All right. So we talked about you’ve got the handyman stuff, you’re still doing some of the work yourself. It’s the plan eventually. Are you desperately trying to get out of your job? You’re like, I got to quit this teaching thing as soon as possible. So I got to build up my cash flow. Could you leave or do you make … could you leave it soon with the cashflow you’re getting right now? Like where are you at with that? And then what’s your mentality behind quitting your job and finance freedom?

Jon:
So financial freedom. I hit financial freedom technically, I guess a year ago. Like I could quit my job right now and be fine. But after going through COVID and everything, just sitting there for five months, I'm good. I don't ever want to retire I think. I like what I do. I like having something that's not just real estate on the side. Now, I still like doing real estate and I've noticed if anything, I want to hire somebody to start managing my real estate so that I can specialize in just keep buying it.
So if I can set up a system to where somebody manages my 18 units and then manages my 29 units, I can keep buying 10, 11 units every couple of months or whatever, every couple of years, whatever it may be. And I can still do whatever job I like on the side, like teaching for me is fun. I get along with people. Yeah. So I don’t really have an exit strategy for teaching, but it wouldn’t be the end of the world if somebody walked up to me and was like, “Jon, you’re fired.”
Oh, okay. See you. Have a good day. That’s the way. At FedEx, hey got me, man. There was one day I walked in and I had … I was used to doing about 60, 70 stops. And I had to drive about 250 miles total for the day. And my boss told me that somebody called out and I was going to have to do 100 plus stops drive, maybe 300, whatever miles. I had a rough day. And he said, “What are you going to do?” I sat down. I was like, “Man, I’m going to quit.”
He said, “What are you going to do?” He didn’t care if I quit. So I still needed to make a paycheck. And I decided right there, I was like, I’m not having anybody have their thumb on me ever again, because that moment of it feels like they got you. Your boss has you. And that freedom of not having, like, I still respect my boss. I love my boss now. But as far as someone coming in and trying to threaten me over her job, see you, I don’t have time for it.

Brandon:
That point resonates so strong in my soul. Because when I talk about financial freedom, I’m not talking about sitting on a beach, drinking margaritas all day. Like even though yes, I live in Maui, but that’s not what I mean. Because I still want to work for the rest of my life. I love working. I love building, being creative.

Jon:
Growth.

Brandon:
Yeah. It’s growth. We love that stuff. It’s I don’t want anyone having their thumb on me saying I have to do this or else. That trap kills me. It just kills me.

Jon:
It does.

Brandon:
Yeah. So yeah, the freedom to be able to do stuff is more important than the freedom itself for me and it sounds like you.

Jon:
So that was the first step I noticed. I noticed that there was freedom in that. And then what you’re talking about. I can take my wife on dinners now a little bit more than I used to. I have a brand new son, he’s five months old and I pay for childcare with-

Brandon:
Congratulations.

Jon:
Thank you. I pay for childcare with rental property. And it’s a blessing for sure. So [inaudible 00:48:01].

David:
Well, you said something that sort of illuminated this, brought a lot of clarity into my mind about entrepreneurship versus working for someone else. When you were saying, if I could find someone to manage my properties, I could go on to grow more. I realized that you were highlighting what every entrepreneur, which every business owner does is they’re constantly solving a new problem. That’s all that business is.
Here’s a problem. Can you figure out how to solve it? Sometimes it’s leverage. Sometimes it’s a system. Sometimes it’s knowledge, all this stuff Brandon and I are talking about are just tools we use to solve problems. That’s what you sign up for when you become an entrepreneur. The opposite end of that is working for someone else, driving their truck and you become the solution for someone else’s problem.
Hey, someone called in sick. It’s your problem. You’re now doubling the work you’re going to do. There’s nothing you can do about it because you’re the solution for my problem. So what the people who want to get into real estate investing have to understand is that while you are getting away from someone telling you what to do, you are voluntarily walking into a lot of problems that you have to solve.
And if you bring the mentality of, I want all the security that comes from having a job where I’m solving someone else’s problem. And you also want all the freedom, you’re going to be disappointed. You have to understand both sides have merits in their own way. And you have to pick the road that’s best for what you want your life to look like. Brandon does not mind solving problems.
He doesn’t like a thumb on him. Jon, it sounds like you’re the same way. So what you guys have done really well. For the people that are listening that can’t get going, or they constantly say, well, what about this? Well, what about that? And that’s the reason to not start. That’s just indicative of a mindset that comes from a W2 job where you’re not the person that has to solve the problem. You are someone else’s solution.
So if what about this is stopping you, that’s what you need to let go of. You have chosen to walk into a scenario where what about this is your job.

Jon:
And it is so hard, like on the other end of that, it’s so hard when you don’t have rental property and you don’t see the numbers and you just hear about people doing it. And you’re say you need to save up $10,000 to buy a house. In your head, it seems hard. I get it. I was there not a year or two ago. It seems impossible to just get to the barrier. But once you do, it’s almost, I don’t know. It was a very clear feeling what happens is, and you let go of fear.
I think people, when they say that, what about this? What about that? I think that's the fear. Because I can go through my phone right now and show you the messages from, I keep bringing him up, Devin MacLeish. I was messaging him. I said, what about this? What about this? This is not going to work. Direct mail is not going to work. He says, "It's working for me. Why doesn't that work for you? Can you not invest $2,500? Do you not have 25?" I was like, yeah.
And he goes, “Okay, invest it.” And then I still wouldn’t because I was afraid it didn’t work. But that’s what it really boils down to. Is you one, for anybody who’s out there who wants to jump in, you do have to in a weird way, let go of that fear. And I know it’s hard, but once you do, the results are incredible permitted it’s done right. And you can listen to anything, Brandon and David have anything on YouTube. Any problem you have, you can find a solution to it. And it’s not so scary.

Brandon:
Yeah. I’ve told this story before, but I’ll say it again real quick now is like, that’s how I found BiggerPockets originally. Is I had told my parents that I was not going to go to law school. I was going to go and buy rental properties instead and go be a real estate guy. And they were like, “Are you crazy? What are you doing?” I remember my dad saying, “Well, what are you going to do if tenants don’t pay rent? You won’t be able to pay the mortgage. You’ll end up living under a bridge. You can’t pay the whole mortgage yourself.

Jon:
Bankrupt.

Brandon:
You’re bankrupt.” And I was like, “You’re right. I can’t pay $2,000 a month mortgage. My job I’m making nine dollars an hour. What am I going to do?” But rather than allowing that fear to dictate my decision, instead I allowed that fear to guide me to asking the better question of what do I do if … I typed into Google, what to do if tenants don’t pay rent? And I found an article on a little tiny forum at the time, it was just a forum called BiggerPockets.
And weird name and didn’t know what it was about. And the article was about what to do when tenant don’t pay rent? And it was like, I do this. And then I send this and then I do this. And I was like, “Whoa. Yeah, there’s answers. There’s things people do.” And then I jumped into the BiggerPockets forums and started like realizing there was thousands of conversations about like, what do I do in this situation? So if people are listening right now going, like, they have that fear of, well, what if this happens? What if this happens?
I can almost guarantee you, there are hundreds of threads in the BiggerPockets forums that address that specific thing. I love when people are like, well, what are you going to do if you get more than 10 properties? Banks won’t lend to you. I’m like, “Come on, everyone figures that out,” because I have an issue. Or what are you going to do if the bank says, no, what are you going to do if you don’t have good credit? What are you going to do if you don’t have enough down payment? Everything has answer.

Jon:
Yep. And then another thing just know in the back of your head, if somebody else is doing it, I’m doing it. Brandon is doing it. David is doing it. If somebody else can do it, surely you can do it. You just follow the process.

Brandon:
That was one of my favorite points in the book. The 10X Rule from Grant Cardone. I read that before we ever had Cardone on the podcast.

Jon:
He’s awesome.

Brandon:
Yeah. He was a cool guy. And the 10X Rule was so good because they made this point in that book. He said, when somebody is doing something incredible in their life, like amazing, the natural reaction is to get jealous, to be jealous of them buying a bunch of real estate. They just closed on a big property. They just crossed whatever the threshold in their life. He’s like, instead look at that as if, well, they could do it, then I can do it.
It’s not like they have more time in the day. They have the same 24 hours we all do. So if anybody’s ever doing anything, it means that you can do that thing as well. And so we should be looking at other people’s success as motivation and encouragement of our own life. And that’s made a huge impact on me. Now years later after reading that, I think about that all the time.

Jon:
And I bet it changed your perspective too.

Brandon:
Very much so, very much.

David:
If you embrace that, what they did was they said, “Hey, there’s going to be problems. And I got to solve them.” If we all take that same attitude. Yes, we can do the same thing. I think that Jon, you just made a really, really good point that you naturally, when you walked into this new, well, I got to figure how to manage this property. I got a problem. Hey, can you help me do it?
Yeah. I’ll spend the first six months or five months or whatever it is teaching you how to run it. And then the down payment from the first five months will come from the work that came in from the rent. Problem solved. You were brought into this world understanding there’s a way to solve problems and that’s what I’m really doing. And when you approach real estate from that perspective, it doesn’t feel that hard.

Jon:
It gets fun too.

David:
That’s a good point too. If solving problems is fun for you, this might be a great thing to get into. Yeah. If not, maybe you like being a biology teacher and don’t feel bad about that either. There’s definitely a role for everybody.

Jon:
True. True.

Brandon:
Cool man.

David:
This is great.

Brandon:
Yeah. This is awesome. I want to do the deal deep dive here in a second. But before we do, I’m curious, are there things that our audience can bring value to you? Anything you’re looking for right now, anything that would help you out in your business?

Jon:
Nothing on my end. I’ve got not much of a social media presence. I pretty much just kind of living my life, going to collect some money, and get some more rental properties and try to teach students. Everything’s good online. I guess if anybody’s listening and you want to help me just, I don’t know, help yourself go out there. Listen to some BiggerPockets, listen to Tony Robbins. Listen to Get Your Mind Right. I don’t know. Just make sure you go after your dreams. I know that sounds cheesy, but you get one life. Enjoy it.

Brandon:
That’s awesome, man. Very cool. Well, with that said, let’s move over to the next segment of the show. It’s our deal deep dive.

David:
Deal deep dive.

Brandon:
All right. This is the part of the show where we dive deep into one particular property you’ve bought to get the dirty details on it. So you got something in mind that we can dig into?

Jon:
I do. I do.

Brandon:
All right. All right. Well, we’re going to throw a bunch of questions at you. Number one is first of all, what kind of property is it? And where’s it located?

Jon:
So this is a single family and it is 200 yards away from my 10 units. [crosstalk 00:55:53]This was when I was saying I was on Berry Street. Yup. Chattanooga.

Brandon:
All right.

David:
Okay. How did you find it?

Jon:
A funny story how I found it. I was at Starbucks again, I guess, I don’t really do much. So I was at Starbucks. I was hanging out with one of my buddies and I watched a Mercedes back in to another car, a really nice car backed into this Honda Civic. And they grounded the entire side of it as they backed in. And I saw the guy who got out and I have heard of him. And after you call so many people looking for phone numbers of people in real estate, you start to get familiar with names. And I’ve seen this face before and I’ve met his uncle.
But he’d never met me. So when he came back out, we saw his car, he asked whose car he hit. And I told him it was one of the workers inside and he came back out and I was like, “Are you David?” And he goes, yeah. And I said, literally just out of nowhere, I was like, “Do you have any properties you’d be willing to sell? I’ve heard your family’s names. This, that, and the third, I know it’s weird coming out of left base.” He said, yeah.
He said, “Take down my phone number. There’s a property. I’ve got a few of them.” So he texted me and we found this one we’re talking about. And I bought it for 60. But that’s how I found him. I watched him back into somebody’s car at Starbucks. And then, “Hey, sorry, you did that. Do you have any houses?”

Brandon:
That’s really funny.

David:
That’s exactly what people do that are good at this stuff. They don’t-

Jon:
You have to be weird a little bit.

David:
You would just embrace it. That’s what you’re doing is you’re constantly asking that question of everyone you meet. That’s an awesome story. All right. So now we’re going to call that the car accident method. We’ve got the sunflower method and the car accident method.

Jon:
Trick one, you have to plant the car slightly off [crosstalk 00:57:30].

David:
Just fill a parking lot up with dummy cars that are parked incorrectly. Make your own way. Okay. How much was this deal?

Jon:
That’s 60,000. Well, 62 after everything, but yeah, 62.

David:
And how’d you negotiate that?

Jon:
I’m trying to think. I don’t actually think I’ve negotiated someone on their price down at all the entire time I’ve been buying them house. My home I’m in right now, I paid $5,000 more than what they were asking. The market was going crazy. The rental properties that I’ve bought from people, they always give me a good deal. And when I run my numbers, if it makes me my goal number, then I don’t try to talk them down because I feel like one, they’re already giving me a good deal.
Two, are they going to give me more deals in the future if I’m always trying to chip at them? So I bought it for 60. Didn’t really have to negotiate. That one rents for 750 a month.

David:
Side question for you. Approximately how much equity do you have in your whole portfolio right now?

Jon:
I looked at it and this was surprised. Last time I went to the bank and they did all the numbers and it shows your net worth on one of the papers. It said 400,000. And I looked at it and I was like, my goodness. I did not come from a lot. Whenever you're seeing 400,000 at 28, if I sold all my property, it was just a really good feeling.

Brandon:
That’s awesome.

David:
Point I want to make here is how to have a $400,000 net worth, always paying over asking price for everything.

Jon:
For real. Because you all … Yeah.

David:
Right. That’s how real estate works. Okay. All right. How did you fund this deal?

Jon:
So that one, I saved up 15%. So on a $60,000 house, I think it was 15%. Down's about nine, 9,500. Now you have closing costs that are associated with that, but I try to negotiate out of getting closing costs. So we made the price $2,000 higher and then him pay for the closing cost. So that way he got his $60,000 and I got the house.

David:
Also side note. I do this in my business all the time. At a four percent interest rate or so, you probably increase your expenses by eight dollars a month by borrowing another $2,000. But that $2,000 you saved, how many hours do you think that it takes you to do that? So in general, when rates are this low, it is so much smarter to pay more for the house and get closing costs covered, keep the cash.
You’re going to get a much better return on that two grand than the four percent that you would have saved on the interest rate or the three and a half, whatever people are paying. So, that’s also very useful.

Jon:
Yeah. Also on a side note, I mean good for people who pay off their college loans. But if there’s one thing I learned in college, it’s always apply your money to the highest interest rate thing. And I’ll watch people save up $50,000 and pay off or pay off $50,000 worth of debt on their college loans, which is incredible, good for them. But those loans are at a four to five percent interest rate.
Why wouldn’t you take that 40 to $50,000, buy a house, make those payments on the college loans using the house. And then you have an asset that you never have to get rid of ever.

David:
Or ALSAC, they’re spending $1,200 on rent, that is a much higher return if they could have got themselves a property and reduced that from 1200 to 300. That $900 was way more than whatever their student loan was. And that 50 grand was the down payment on a house or two they could have done instead of, yes. That’s a great point.

Jon:
Yeah. Just pay down that interest rate, the highest one.

Brandon:
All right. Well, what did you do with the deal then? You ended up renting it out on them, right?

Jon:
Yeah. So I actually, I bought that one. He had it rented out. The worst part about that one. And if anybody is listening, I had taken a few of those home inspector classes and I wanted to start my own business doing home inspection for a little bit, or at least do it on the side. So I had a rough idea. I was going through the house. Okay. Looking for the stepping cracks. Don't see any of those, looking at the window seals, looking for water intrusion.
Well, my dumb, dumb self didn’t go up on top of the roof. I looked at the roof visually from the road. I was like, “Okay, it looks square.” So a couple months later, tenant texts me and they’re like, “Hey, my roof’s leaking.” So I send my guy out there and he climbs up on the roof and he shows me, first thing they do is they pull up what’s on top of the roof to the porch, just rot, just rot. And I was like, “Oh my God.”
And we ended up costing, that was a $10,000 roof on that house. So even though that house is a good deal, 750 a month, I think the mortgage to it’s 350 ish a month and then taxes and insurance brings that up another 100. So that house makes three ish hundred a month. And that’s now depending on which purification level we’re looking at, but it’s still made money. So I’ll take it. But then writing a $10,000 check was no fun either. So now that house, any time that they give me rent, just go back to paying that.

David:
Yep. That makes sense. And that’s the thing we just talked about, about you’ve got those little frogs that jump-

Jon:
[crosstalk 01:02:21].

David:
Yeah. Makes sense. The frogs are filling the window hole, but yes, inspect. So what was the outcome? Where are you at today? What kind of equity do you have? Where do you see yourself [crosstalk 01:02:33]?

Jon:
I still have it. That house I could sell for now $90,000 right now. That’s great. Tenant’s wonderful. She calls me at the third or every month, says, “I got 750 for you.” Awesome. It’s working. And she does park too many cars in the yard. So we’re working on that, but nothing’s perfect.

David:
Unless you get someone to run into those cars, in which case that can be more deals. [crosstalk 01:02:53].

Jon:
I’m like, “Where’s your heads at?”

Brandon:
Way to bring that back David.

David:
All right. What lessons did you learn from this deal?

Jon:
So that one always, if you think that you know how to inspect the house, make sure that really go through and inspect it. You don’t have to worry as much as you might think you have to, but still go up on the roof. Look at the big expenses. If you see double layered shingles, or if you go up and you see water up in the ceiling, definitely check that out. That’s worth an ask from the buyer.
And don't be afraid to ask the buyer. A lot of people will get too aggressive. Let's say they found that house for 60,000. They say, "Let me get it for 50." You might start off a little too strong. But then on the other side of things, you don't want to scare away your seller, but you also don't want to buy a bad deal. So always, always, always do your due diligence, make sure that the house isn't falling apart, make sure the roof's good.
Always go back to your fundamentals, make sure the house makes money. That 750 on a $60,000 house, makes money all day. So make sure it hits your rules.

Brandon:
Yeah. Do your math homework and do it right.

Jon:
For real. And do it to where it’s ingrained to where you don’t have to think about it. You know that the $100,000 loan is about this a month, a $50,000 loan is about this a month.

Brandon:
Yeah. I always tell people like you may have to analyze 100 properties in your market before you feel comfortable knowing that market really well. And knowing what private properties like the cost of these things are going to be, because it takes practice. People expect to [crosstalk 01:04:22].

Jon:
It does. [crosstalk 01:04:22]. Kobe Bryant shot 1000 shots. He didn’t stop shooting. You still go out, you make your repetitions. And that’s why you’re the greatest.

Brandon:
Yep. Yeah. It’s practice, practice, practice, practice. I don’t know why people think real estate is any different, but it’s not. All right, man. Well, that’s awesome. Good stuff. Let’s have our last segment of the show. It’s our famous four. All right. Time for the famous four, the part of the show where we ask the same four questions to every guest every week. First question, what is your current favorite real estate related book?

Jon:
I’m going to go with what everybody says is Robert Kiyosaki.

Brandon:
Rich Dad, Poor Dad.

Jon:
Rich Dad, Poor Dad. And I haven’t heard a lot of people say the reason why it’s so good, but it changes your mind. You look at real estate, you look at business, you look at money one way, you look at debt one way. I grew up, we didn’t have a ton. And my dad always said, “Get out of debt as fast as you can, get out of debt.” So my whole life, it was, I got really good at saving money and I got really good at not getting into debt.
And that book, whenever he talks about going into debt, I’m almost, I don’t know, I’m close to a million dollars in debt now, but that money, it makes profit. So that’s a healthy debt. So seeing that change was huge for me. And then just seeing him talk about what you would have to do, like little subtle things. He said he would do run his neighborhood and look at houses for sale. And I said, “Okay, if he does that, that’s what I need to do.” And that’s when I was a teenager still. So, that’s the best business book, I think a real estate book so far.

Brandon:
Very cool.

David:
We’re a big proponent of mindset. That’s why we point it out every single time. Mindset’s the soil and the knowledge we gave is the seed. Having all the knowledge in the world doesn’t matter if your soil is not ready to receive that. Okay. On the topic of books, what’s one of your favorite business books?

Jon:
The best business book you can get is I was thinking about this in the car, How To Win Friends and Influence People. It is my Bible. If you can’t talk to people, and there’s nothing bad about that. I know some people are awkward and there’s nothing you can do, but you can always relate to somebody in some way. But if you don’t get it around your head, that if people don’t like you, they’re not going to do business with you, period.
And that’s all business is. Is you’re reacting and interacting with people who in a some weird way, you see the same viewpoints on certain things. And that book tells you exactly how to do it. And it doesn’t feel fake or contrived. It really teaches you to actually listen to the other person to make it authentic. So, yeah. Great business book.

David:
All right. Any hobbies?

Jon:
Yeah. I’ve been doing Spanish now. So my students, a lot of them speak Spanish. 340 days in a row, I haven’t missed that. I like shooting. I like going out with my bow, trying to think basketball and working out and running. I just ran my second half marathon. I got an hour and 35 minutes for my pace and crushed it. Loved it.

David:
I don’t know about that marathon, but everything else, we might’ve just become best friends. It’s all [crosstalk 01:07:22].

Jon:
Dude, come on out to Tennessee.

David:
Yeah. And I don’t think I would mind not paying the California State income tax.

Jon:
[crosstalk 01:07:29].

David:
There’s a lot of Californians that are coming out that way.

Jon:
I’m sorry. I’m sorry how much you have to pay.

Brandon:
Yeah. [crosstalk 01:07:35].

David:
Yeah. Brandon and I were just talking about that. We’re looking to buy some property out there in Tennessee exactly for that reason. So if you guys know any great commercial brokers or people that are willing to help, we’re looking, so send [crosstalk 01:07:45].

Jon:
Eyes out for commercial brokers.

David:
Thank you. Brandon.

Brandon:
All right. Last question to me, what sets apart successful real estate investors for those who give up, fail, or never get started?

Jon:
That’s my favorite question, because I would like pretend in my head hearing this question when I was pulling up to the bank. It’d be 7:30 in the morning and I would be finishing up the podcast, listening to you guys talk and I would always wait to hear whatever this person had to say. And there’s nothing gold, but it literally is, do not give up.
And every time I heard someone say that, if I was having a rough day, I couldn’t find a house, my boss was giving me a hard time. I didn’t think that … it was so far out in the future of having real estate. Just know that if you don’t give up and you chip away at it, even if it’s two minutes a day, you can find two minutes a day, no matter what, to hone your skill in some way, to learn a new vocabulary word, to learn the bar method, to do anything, don’t give up. You’ll hit it one day.

Brandon:
That’s really good, man. Really good stuff.

Jon:
Thanks.

David:
This has been a fascinating conversation and I think there’s a ton of value here, Jon. You’re very good at this in case no one’s ever told you that. You should do it more often. For people that want to continue the conversation. How can they find out more about you?

Jon:
I have an Instagram account. I don’t even remember the name of it. Let me pull it up. But if you want to look at me and try to solve any problems on Instagram, I’ll try to post a video of me doing it. Like replacing my window. I’ll do a little fast forward and just, yeah, I’ll do a little construction stuff. What’s my name? John Wooten, J-O-N W-O-O-T-E-N_. You can find me on Instagram there.
And I post many videos. I post informative videos, but that’s pretty much it. If you ever have any questions, you can reach out to me on the direct messenger piece. I’ll try to help as much as I can in the same way that everybody who I’ve gotten in touch with has. So hope I can give back to the knowledge.

Brandon:
Cool man. Jon Wooten, I’m following you. Hey, we even chatted via Messenger. I didn’t even realize that.

Jon:
I told you, man. I’ve been keeping up with you for a while.

Brandon:
That’s awesome, man. Well thank you very much. This has been amazing. Appreciate you being here. Go follow Jon right now on Instagram. And with that said, David Green. Why don’t you give [crosstalk 01:09:52].

David:
Thank you very much. This is David Green.

Jon:
David, Brandon.

Brandon:
Thank you.

David:
It was our pleasure. This is David Green for John Wooten clan and Brandon didn’t know what was in his DMs Turner. You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

 

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In This Episode We Cover:

  • How to find a mentor AND get your first rental
  • Why you should make it an effort to get to know your local real estate investors 
  • Why self-managing is a great way to gain experience
  • How to get seller financing on a rental (and who to ask for it)
  • Why you should call “for rent” signs
  • What the “Sunflower Method” is and how it builds wealth
  • The best way to find a quality (and inexpensive) handyman 
  • Fake cash flow vs Pure cash flow
  • How to properly inspect a house before you make an offer
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Connect with Jon:

Real strategies that work for real people seeking to build wealth through real estate investments. Co-hosted by Brandon Turner and David Greene, this podcast provides actionable advice from investors and other real estate professionals, who chat about failures, successes, motivations, and lessons learned.
    Raphael Ramos from Bergen County, NJ
    Replied about 1 month ago
    Appreciate the Sunflower and Car analogies! Very motivating stories!
    Stefan D. from Park City, UT
    Replied 25 days ago
    In the show you all reference getting your equity out of the properties. Do you mean selling properties? Refinancing? Or, are their banks that will lend based on that equity?