Financial Independence at Age 30 (by House Hacking + Side Hustles) with Drew from Guy On Fire

Scott: Welcome to BiggerPockets Money, Show Number 9.

“Live like a college student for as long as possible, you know. It’s not so much the hosting keg parties on a Tuesday or pulling a Van Wilder. But I’m referring more to your budget and your spending habits. I mean, as I mentioned earlier, most folks didn’t have a lavish budget in college. We lived on a spaghetti budget, ramen, and the dining hall. Just because you have a paycheck doesn’t mean you should develop a caviar taste now”.

It’s time for a new American dream, one that doesn’t involve working in a cubicle for 40 years, barely scraping by. Whether you’re looking to get your financial house in order, invest the money you already have, or discover new paths for wealth’s creation, you’re in the right place. This show is for anyone who has money or wants more, this is the BiggerPockets Money podcast.

Scott: How’s it going, everybody? I’m Scott Trench and I’m here with my co-host, Miss Mindy Jensen. How are you doing, Mindy?

Mindy: Scott, I am doing fantastic. Have you been outside today? It is a beautiful day following kind of a run of cold weather here in Colorado.

Scott: Yeah, I mean it was still a little bit of snow on the ground, so I drove to work today but I’m thinking that because it’s cleared up enough, I’m probably gonna bike tomorrow. So back to biking so I’m very excited about it. It’s going to be 50 degrees all day, every day this week.

Mindy: Nice. You know, today, our guest mentioned that he bikes to work and that was one of the ways that he saved money, was biking to work. I noticed that a lot in these frugality interviews. People either work from home or they bike to work or they use public transportation or some combination thereof so they don’t really have that huge car expense. I am pleased to see you biking again.

Scott: Although he did just drove a 20-year-old car until maybe as recently as a few months ago when he bought himself a new one, right? This is one of the perks.

Mindy: Yesterday. He bought a new car yesterday.

Scott: Yesterday. That’s right.

Mindy: Oh, did I give something away about the show? Whoops.

Scott: Yeah, you’re giving away all the secrets to the show. He bought a new car. No, Drew—I’m really excited for today’s guest because Drew is someone I’ve met maybe six months ago and I was just so impressed at what he was doing, how he was buying all this real estate in a really hot market that is Washington, D.C. and how he just kind of got out the gates right out of college and got his personal financial house in order and just accelerated so rapidly towards financial freedom.

And the way he’s done it is just hard work, hustle, savings, smart investing, and then opportunistic networking. And he takes jobs for not only—side hustles—not only to make a little extra money but also to learn more so he could help his long-term business. He’s going to have a seven or less year career, I think.

Mindy: Yeah, he’s not going to be in the workforce for very long. You kind of glossed over this and I want to bring it back and say, hustle. He has so much ambition and—I can’t even think of the word I’m looking for—he has so much oompf. So much hustle. There you go. He has so much hustle. He doesn’t just take his lifestyle for granted.

He goes out and makes more money and continually look for ways to increase his net worth, to increase his income in ways that aren’t like just getting a second job. Anybody can get a second job but he’s doing these little side hustles. And you know what? We always do this. Every single time. We sit here and tell their story for them. Let’s stop.

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Okay, hold on. I want to add one more thing in there. Hustle is the key here and this episode is for you. If you’re someone who wants to hear about what could have happened if you graduated college and then optimized every direction, as much as you could, in order to pursue financial freedom.

This is the result of that kind of optimization. That opportunistic hustle, the high savings rate and smart investing. And it’s just a really cool story to hear. So please listen to this show if you’re interesting in that concept and share it with anybody and everybody that is starting out so that they know what to do and have this repeatable path to them.

Mindy: Yes, absolutely. So we should not just sit here and tell his story for him. Why don’t we bring him in and let him tell his story?

Drew, welcome to the show.

Drew: Thanks for having me, guys.

Scott: Yeah, so me and Drew met at a FinCon, I think back in September of 2017 and immediately hit it off because he’s got a really cool story. I think there’s a little bit of similarity between his story and mine and actually, one of my buddies, is a D.C. resident and a huge fan of Guy on Fire. He said, you’ve got to meet Guy on Fire! Drew, I think it is. Okay, okay.

So I ran into Drew and I was very impressed and surprised to see everything that he’s done and I’m kind of excited to share that with everybody here. So Drew, can you tell us a little bit about where you first discovered the concept of financial freedom and how that kind of interested you?

Drew: Definitely. So I discovered financial independence or financial freedom somewhere between my last year of college and my first year of working and it really hit home with me because I didn’t like the idea of being stuck in the office in a cubicle for the next 40 years. I’m a big outdoors person. I like being able to have flexibility and freedom. So it really got me thinking, how do I get out of corporate America?

One of the big things I did, I started working in commercial real estate at the time. So I started house hacking. I bought a three-bedroom, two bathroom house and rented out two of the extra rooms and that really lowered my cost of living since I was able to reduce and then eventually eliminate one of my biggest expenses. The average American spends about a third of their income on a place to live.

Scott: Where was this house hacking? Were you still living in D.C. at this point or was it somewhere else?

Drew: It was. So I’m from the D.C. area and I’ve been here for the last eight years now. So I’ve been house hacking in the D.C. area for the last four years, too.

Scott: So I have a quick question here about the way you approach this. So did you come out of college and into this first job with assets or did you kind of accumulate them over the course of that initial period and then used this as your first major investment? And kind of what was your first thought process, going into that house hack?

Drew: So graduating college, I had a little bit of credit card, nothing too out of control. I think it was $4,000-$5,000. And I had about $20,000 in student loans. I was fortunate enough to be living at home for the first couple of months after graduating so I was able to stock away a lot of my paychecks.

But I also really took advantage of that time and I was definitely side hustling while living with my parents to save up for a down payment. So I was working as a freelance photographer and I was delivering Moon Bounces and I would also serve as a swim practice taxi for a kid in our neighborhood and that involved waking up at 3:45AM every morning to drive him to swim practice.

Mindy: Who was that, Michael Phelps?

Drew: I wish. That would have been very fun.

Mindy: The next Michael Phelps. Yeah. 3:45AM, that’s a pretty hardcore swim practice for a kid that obviously can’t drive.

Drew: You know, he was a high school aged student and it was very interesting. He was self-motivated. His parents weren’t pushing him to do it but they were willing to find a way to get him to the practice.

Scott: They were like, we’re not going to drive you at 3:00 in the morning but we’ll hire this guy.

Drew: Hey, you know, finding ways to fix problems is a great way to make money on the side.

Mindy: Oh, my God. That’s such a great quote. That’s awesome. So tell me, what did you study in college?

Drew: Finance and economics.

Mindy: Okay, and you said you were working in commercial real estate. What were you doing in commercial real estate?

Drew: So I started off underwriting commercial real estate loans and did a lot of multi-family ground up construction and value-add and stabilized assets. So what I learned on the job was actually great for analyzing my own investments.

Mindy: Yeah, that’s awesome.

Scott: So that seems to have—a lot of people I know that work in commercial real estate space kind of treat it like another finance gig. I don’t know about your job but it can be real high income, long hours kind of stressful work. Did you find that to be the case at all?

Drew: Absolutely. I mean, the hours were very demanding, especially my first couple of years on the job. I’d usually be the first one in the office around 7:00 in the morning and it’d be a lot of 12-14 hour days, nights, weekends.

Scott: It took you three hours to get to work? Sorry.

Mindy: First, he had to drop the kid off. Are you still doing commercial real estate?

Drew: I am. So I’m still working commercial real estate in the daytime and I also run my own investments on the side. I actually ran a property management company for about two and a half years also on the side. So that is a fun side hustle where I managed about 50 properties in D.C.

Mindy: And that was your own company or were you working for someone else, or you were the head dude?

Drew: I was running a lot of the day-to-day but it was another gentleman’s company. And he actually served as my mentor and he taught me a lot about the actual mechanics of being a landlord.

Mindy: Yeah, working for a property management company is a great way to get experience. So with the background in commercial, do you have any interest in doing commercial yourself?

Drew: Definitely. So the one challenging aspect about living in a place like D.C. is property in general is very expensive and to buy anything kind of A-Space, people are paying like 4.5-5 cap rates to where it’s just not a very lucrative return.

Scott: Can you explain a cap rate real quick, for people who may not know what that is?

Drew: A cap rate is a way to evaluate commercial real estate. Simply put, you take the net offer income of the property, which is all the revenue minus the expenses and what would be left over and you divide it by what’s called a cap rate. And that gives you the value of the property.

Scott: So if I had $10,000 in income and I bought a $100,000—if the property produced $10,000 in income and it was purchased for $100,000, you have a 10% cap rate, right?

Drew: Right.

Scott: Quickly, let’s go back to the world of kind of personal finance and house hack. And the reason I wanted to ask you about your career in commercial real estate here is because that’s a high-income, long hours career. And I know a lot of peers that are in kind of situations like that who would love to learn more about personal finance but they just can’t seem to make the time or put in the effort after those long hours to then go and build private wealth. Yet, you’ve been able to do that in a really cool way.

And so I really want to hear, how did you go from $20,000 in student loan debt and a couple thousand dollars in credit card debt to buying this house hack. What were the levers that you put into place in your own life to come up with the down payment or otherwise finance the property and then what did your expenses on the rent side look like before and after the purchase?

Drew: Definitely. So, jumping into first the savings part. As I mentioned, I was fortunate enough to live with my parents for a couple of months after graduating. And during that time, I learned to live off my side hustle income so I was banking probably 80-90% of my take-home pay for my day job. So I was able to stock away money rather quickly.

And then I was able to save up enough for a FHA loan, which was a 3.5% down payment on my first house. I think that was about maybe $12,000 give or take. And I was able to rent out those two extra rooms. One of the mistakes I learned along the way was giving friends rental rates below market. I charged each of them $750, so the total was $1500, and it was great for them, great for me. I wouldn’t recommend necessarily doing that.

Because it’s an FHA loan, the loan was a bit more expensive since you have PMI and I believe my initial carrying costs were about $2300-2400. Thankfully, I was able to refinance out of that loan because the property value went up and I was also able to pay down some of the principal and when I refinanced, that dropped my mortgage by about $400 a month. So my payment was around $1900. So my rents were $1500 and my mortgage was $1900, which meant I was owning a home essentially for $400 a month.

Mindy: What year did you buy this house?

Drew: This was 2014.

Mindy: Okay.

Drew: So back in 2014. So I was looking at it like owning a house for $400 a month where the average rent in D.C. area at the time was about $1500 a month for a studio or a very small one-bedroom. So it seemed like a bargain. It was definitely a way to keep my expenses down.

Mindy: What would market rents have been for your friends if you would have been charging them? Would that have been $1500 each?

Drew: It would have been probably closer to $825 or $850. So they were $75-100 bucks below.

Mindy: Okay, so that’s not a super low discount. It’s not like you gave them 50% off. Okay.

Drew: Definitely not. I didn’t give away the farm.

Scott: I think you’re not giving yourself enough credit because this sounds like a pretty good living situation, right? Did you enjoy your time in this house hack with your friends and were you close to any cool parts of town or anything like that?

Drew: It was great. Me personally, I’m a biker. And there’s a trail a block away from the house so it was easy to actually bike to work once I started working downtown. We had a brewery two blocks away from the house, which was fun. It’s actually a very walkable part of town which is great. And I enjoyed it. During the two years I lived in that property, my living expenses were under $1000 a month or right around $1000 so it was a great way to stock away money I was putting into my 401K and I was investing in individual stocks, too.

Scott: I mean, that’s awesome. You start out and you have a couple of advantages. You have a modest amount of student loan debt. You have the ability to live at home with your folks and not pay rent to save up for the initial years. And you take advantage of those things. And then you immediately set out to pack your housing here in a way that is fun and is more financially savvy even then living for free, which is very difficult for most people to do, and then I assume that you had the option, at least, to retain this place as a rental property. Is that what you did?

Drew: I did. After a little while, I started running some numbers. I remember one day sitting on my living room couch, updating my expenses, my budget for the month, and I track where my net worth is. I think I was 24, maybe 25 at the time. And I was wondering what would it take for me to become a millionaire by age 30? And I was like running through some scenarios. Okay, if I save about $20,000 a year, it’s not going to get me there. If I try to save $40,000 a year. Not going to get me there.

And I ran a bunch of scenarios and I realized, I need to focus on earning more. So this led me down the path of buying my second property. So I got a property in downtown D.C. It was an old rental home, a complete fixer-upper. Ripped it down to the studs. All new electric, plumbing, and moved out of my first house. Had a roommate take over my room so then my first property became cash flow positive. It was renting for $2350, I believe. And the carrying costs were about $1900 a month. Not the greatest cash flow but it definitely was throwing off cash. But the house I moved into took a three-bedroom, one and a half bathroom house and turned it into a five-bedroom, two and a half bathroom house.

Scott: Wow.

Drew: It was great. It took a lot of work. I was waking up most mornings at 4:35 in the morning so I could be the first person at Home Depot to pick up supplies. I was doing some of the work myself but I also had contractors doing some of the work, hence I still had to maintain a full-time job.

Scott: Well, you were used to getting up early, right? Were you still driving the kid to swim practice?

Drew: That ended probably about a year or two before that. The kid turned old enough to get his license. I think he was 17 and started driving himself.

Scott: Fair enough.

Drew: But the second house was great. The location was much better and I was able to get about $1000 per room on average. So I was collecting $4000 in rent and my carrying costs were about $2400 in rent. So I was able to live for free and pocket $1600 a month.

Mindy: Yeah, those are better numbers.

Drew: Much better. You know, I don’t think I’ve ever met anyone where their first property was their best investment. So I definitely learned some things along the way.

Mindy: Yeah. But you know what? Buying a property and doing the work and figuring it out as you go is a really great way to learn. You can’t learn better than experience and there are a number of people who will go on TV or go on the radio, and oh, I’ll teach you how to do this. All you have to do is pay me $40,000. Put that $40,000 in the house and learn your own self.

Drew: Absolutely. And I should throw out there that I used a 203K FHA loan so the loan required only 3.5% down and I was also able to have extra loan dollars provide money for most of the renovation, so if anyone is looking to get into real estate, that’s a great way to buy a fixer-upper with limited funds.

Mindy: So how did you find your experience with the 203K?

Drew: It’s a little slower than I would like because you have to have, I believe them call them an FHA inspector come to the property. He makes sure the budget makes sense. And then say you’re replacing all the windows, so he has to say, yes, there’s new windows here. Yes, they were installed correctly. And he submits a report to the bank and then the bank has a couple of days to process the report and then they send you a check on a reimbursement basis for you and the contractor.

Mindy: Okay. So you still need to put money up front for the renovations.

Drew: Your contractor is supposed to work on a reimbursement basis. And so there’s a lot of documentation that goes into the 203K FHA loan. You have an agreement with the inspector and the contractor and there’s a lot of contractors who actually specialize in this type of loan and they understand that they will be reimbursed within a reasonable timeframe.

Mindy: Oh, that’s better than just a regular person. There’s no guarantees.

Scott: How does this impact you if you’re a kind of do-it-yourself type of person? Like were you doing any of the work yourself or did you have to hire out a lot of it because it was going to get inspected and you have to have the government and all involved with the licensed contractors and all that kind of stuff?

Drew: So you are able to do some of the work yourself. It depends a bit on your background. I worked and volunteered with Habitat for Humanity for about seven years. So I had some background. I am not an electrician. I am not a plumber. Those things, you needed permits for and you needed a licensed plumber and electrician and you also needed a general contractor to oversee the project. Now, if you are a licensed contractor, you could run the job yourself.

Scott: Okay, so this is going to be not necessarily the cheapest way to do things if you’re an investor, for example, or self-educating a lot in real estate but the advantage again is you didn’t have to bring very much cash into this and you could buy the property with 3.5-5% down and then finance out the majority of the construction expense of what appears to be a major rehab here, adding bedrooms and bathrooms.

Drew: It was definitely an extensive rehab. I think the loan gave me about $70,000 for the renovation and I intentionally went overbudget and I think I spent about another $25,000 on other items over the course of the construction and I ended up renovating the property during the fall. So I waited until spring to redo the backyard and the patio area.

Scott: Okay, so you have the second property here and that is producing $4000 a month or $1000 per room. You’ve got your first property spitting off $2300 in cash flow in rent on a $1900 payment. What happened next? What was kind of your next move there? How did things progress?

Drew: So around the time I started the second property was when I started to side hustle as a property manager. I was still working the day job but my mornings, nights, and weekends, I was working as a property manager. The company started off around I think it was about 23 or 25 properties when I joined and we were able to scale the properties up to just over 50 properties.

So that was a fun learning process, learning how to rent an apartment, learning all the different landlord-tenant laws. I was also doing a lot of the kind of handiwork, learning how to fix a toilet. What to do when a garbage disposal wasn’t working. So in many ways, I considered it kind of like going to school except I got paid to learn. So I had a mentor teaching me everything and I also was paid for my time which was a good experience.

Mindy: That’s a really great way to learn how to landlord. You’re learning on somebody else’s properties. Did you know this person ahead of time or what qualifications did you have that got you the job?

Drew: So he was actually my real estate agent and he’d been in the D.C. area at that time probably about 15 years investing and buying his own properties. And real estate is very much a side business for him. He also has a daytime job. But he’s been able to grow his own portfolio and be a third-party property manager for a lot of people. And he was looking for someone to free up some of his time and somebody that wanted to learn the ropes and that’s where I entered the picture.

Mindy: Nice. That’s a nice mash of both of your interests.

Drew: It was great. I still pick up the phone occasionally when I have an issue, something I hadn’t seen before, and we bounce ideas off each other. So if anyone is interested in real estate, I recommend finding some form of mentor.

Scott: I think it’s fantastic. So you’ve got the first two properties, the house hack, which you mentioned. You have the second one here which was $4,000 worth of income. Do you then move out and buy another one or what happens after this property? You’ve got the side hustle, you’ve got a full-time job, you’ve got two properties. Things are starting to move along now. There’s some scaling coming into play.

Drew: Definitely. So I’m still hustling, keeping my expenses low. Still living in the house hack but I have since bought two more properties.

Mindy: Two additional properties that you’re not living in? That you’ve never lived in.

Drew: Correct. So the first one is a duplex. And it’s a 2/1. So two-bedroom, one bathroom on each. And rented both of those out. And I bought that last spring. And the cash flow on that is great. I rent it for I think around $3400 total and it’s about double the mortgage.

Mindy: Nice.

Scott: That’s great. Fantastic. What about the other duplex?

Drew: The other one is a triplex, actually. And I closed on that at the end of last year. And just finishing up the renovation process on that property. And that is three one-bedroom apartments. It should be wrapping up in the next couple of weeks and getting tenants for that place. But that was a quick, easy renovation. I think I spent maybe $15,000, mostly cosmetics and new appliances. But that property will rent for about double the mortgage.

Mindy: Okay, I want to talk more about your finances. You are making x at your job and you are bringing in all this money. What is your current rate of savings? And I know that it goes down a bit during renovations. I’m a live-in flipper myself and the savings gets nowhere when you’re actually in the middle of the renovation.

Drew: Yeah, it’s challenging to sometimes track when you have the renovations going on. As far as my day job, I’ve probably saved somewhere between 50-70% of that income. So I save a majority of that and I try to keep my living still modest. I’m not paying for rent or a mortgage, since I’m still living in a house hack, which is still doing wonders for my savings rate. As far as my real estate income, I save all of that and just plow it back into more real estate. So I think if you were to combine the two, it’s definitely north of 70%.

Mindy: Wow. That’s awesome. And all of your mortgages, it sounds like, all four of your mortgages are covered by the rent that you are receiving or will be, in the case of the triplex.

Drew: They are. All of them, there’s a very comfortable margin above the mortgage. I think my breakeven is somewhere around 65-70% occupancy across the whole portfolio.

Mindy: That’s so smart. So Scott was featured on BiggerPockets Money episode 2 and he has a savings account for each one of his properties. Hey Scott, maybe you should tell this story.

Scott: My rule of thumb is I put aside $20,000 for the first property and I added $10,000 to that pot for each additional property. And I may change that or tweak it as I scale my portfolio. But right now, I’ve got about $40K just kind of sitting there, ready for expenses. How do you handle an emergency fund or do you even have one?

Drew: So, I don’t have a definitive account earmarked just for emergencies. I do like to keep a lot of cash on hand, given that I am a real estate investor and if I find a property I want to buy, I want to have the funds to do it. But also having seven rental units, I also own seven water heaters, seven HVACs and things can get expensive quickly. So I always keep a good amount of money on hand and I also have a line of credit that I can draw down on at any time if I am short on cash.

Mindy: That’s really awesome. And I think that you could draw a correlation between this with like budgeting. I don’t budget but I also don’t have to budget. If there’s an emergency, I know I can cover it just because my frugal lifestyle allows me to save a significant portion of my income. So it sounds like having—and Scott’s a frugal guy, too. I love that he is planning ahead with having this emergency fund that he never touches. And I look at you and I’m sorry, you don’t look like you’re 25 years old or 26—how old are you now, 27?

Drew: 27.

Mindy: You don’t look 27 either. I think it’s the beard. I’m not saying you look like an old man, I’m just saying you look—I know how old Scott is and he’s very young. I’m like, Scott’s young. He doesn’t have all this experience, but you’re young. You don’t have all this experience either. I am not young. I am not 27, and that’s as far as we’ll go with that.

Drew: You’re 26.

Mindy: Exactly. My new best friend. Yeah, so I know from years of experience that I have enough money to cover it because I’m not going out and buying all this crazy stuff. So I guess, it’s just the savings rate allows you to feel comfortable with not having a huge specific account.

Drew: It’s definitely the savings rate. I mean, I definitely do keep a sizeable amount of cash at all times but it’s also the cash flow. All my properties are on year-long leases so I know there’s predictable cash flow coming in. I also do have my paycheck from my day job and given that my expenses are essentially walking around money, in terms of what do I want to spend for food, transportation, and entertainment, that leaves a lot of room for error. So being frugal early on in life definitely helps.

Mindy: Yeah, you could work at McDonald’s and pay all your bills.

Drew: I probably could.

Mindy: Although that is a hard job.

Scott: What I’m observing about you, Drew, and let me know if I’m wrong on this, is you’re basically, in my opinion, doing all four areas of finance exactly correctly. The four areas as I define them are savings rate—you’ve got a huge savings rate, 80-90% at first and now 50-70%. That savings rate you quote is just from your take-home pay. It doesn’t include the additional income that you’re getting from your rental properties now, right? Or some side hustles. So yeah, you have a huge savings rate.

You’re consistently throughout this entire time period working on side hustles that will give you an opportunity to make a good additional income. You have a high-paying job in the first place, which I’m sure was not an accident. It’s something that you worked hard throughout your childhood and college to put yourself in a position for. And then you’re investing in a way, and self-managing in a way that you believe will allow you to reap outside returns over time.

And that’s a conservative position. That’s not a risky or aggressive position. What you’re doing isn’t crazy and wild. It’s a conservative way to approach life and give yourself way more options than the next guy. Sorry, I just rambled there for a little bit. But that’s what I’m seeing and I love it.

Mindy: It is crazy and wild because in America, we spend every dime we make. And then some. And we have brand new cars and we have fancy clothes and we go out to dinner all the time. Don’t you feel like you’re missing out on life?

Drew: So I just had my first non-frugal purchase of my life other than real estate yesterday. Up until yesterday, I was driving a 20-year-old car that had over 200,000 miles on it. And she still runs and I’ll still probably use her especially for property management stuff. But it’s time to upgrade so I splurged and bought a lightly used car.

Mindy: What kind of car do you have?

Drew: A Hyundai Tucson.

Mindy: A Hyundai. I was like, I’m not familiar with a Honda Tucson. Hyundai. I know that one. My friend has that. Well, you can probably still use that for property management. So I just splurged. Like I said, I’m 26. I just splurged on a car that I had been wanting since high school. I have a 1991 Acura NSX that I’m so excited to drive. This is the most awesome thing ever.

But if I would have bought it when it was brand new, I would have had to spend like three years’ of salary on it and that’s just not the right choice. And now, I spent less than a year’s salary on it and I’m at a point in my life where it’s okay to buy that. So congratulations on your beautiful new purchase.

Drew: Thank you.

Scott: And that’s the whole point of this. You’ve done all these things over the last couple of years and hustled and worked and now, these options—okay, I’m going to get exactly what I want because that’s the whole point of doing this in the first place, is to give you those things.

I guess one question going along this is what was your lifestyle like when you were doing this and is there any change now, maybe on the other side and continuing to accelerate your rate of progress?

Drew: So the first couple of years out of the gate, I was definitely more frugal, tracking every single expense. I’ve developed a frugal lifestyle so I don’t necessarily follow a budget or say I spent $10-30 bucks too much in this category type of thing. So I’ve definitely loosened the belt a little bit but—I guess, did that answer the question?

Scott: Well, I guess what do you do for fun? Do you go to bars? Do you travel?

Mindy: He doesn’t have fun. He’s frugal and you can’t do anything fun when you’re frugal, Scott.

Scott: Oh, I see.

Drew: We’re the frugal weirdos that have no fun. No, I actually do have a good bit of fun. I just balance it with very little sleep. So I love the outdoors. I’m a big biker. I love hiking. I love climbing. I do go out to the bars occasionally. Not really my scene. I’m a big foodie so my splurges are definitely trying the new restaurants around town.

Mindy: That could be a splurge. So what kind of biking do you do, road, mountain?

Drew: I lived in Colorado when I was younger and back then I did a lot more mountain. The D.C. area is better for road. We have a ton of trails. There are probably four or five near miles of trail network where it’s all paved.

Mindy: Oh, wow. Nice. And you’ve got all those monuments to drive past and statues and awesome places. We’ve got some in Denver but I mean, Denver’s got the mountains.

Drew: I love the mountains. I would trade monuments for mountains any day.

Mindy: Well, come visit. You can stay with Scott. He’s got extra rooms.

Scott: Yeah, one day we’ll be neighbors out here maybe.

Drew: Sounds great.

Scott: So what’s next for you, then? So you’ve got the four properties with the two additional rentals that you’ve accumulated, job seems to be going well, side hustles seem to be going well. What are you going to do next?

Drew: So right now, I guess we all ask ourselves why are we doing this? Really, financial independence. I’m probably a year or two out from I guess being financially independent. Right now, working on diversifying a bit away from real estate and stocking money and do index funds, dividend stocks and trying to develop other side hustle incomes. But ultimately, I want to get away from corporate America. I’ve been wanting to do a lot of travelling. I have bucket list items I’d like to do, bike across America or do the Appalachian trail. But those things are tough to do when you have a 9 to 5.

Scott: So at what point would you consider yourself ready to leave corporate America? Is there a number for you or is there a certain amount of properties? What is ready to leave corporate America? A lot of people would say you’re ready. A lot of people would say, hey, if I don’t spend very much and I’ve got four rental properties in the D.C. area, I’m done.

Drew: Still trying to figure that out. With the fourth property at the end of last year, so I need to recoup some of those costs. That was definitely a lot of money flowing out between the purchase, the down payment and the renovations. And I also need to make sure that property’s humming along nicely and there’s no issues with it.

But sometime in the next probably two years or so, I’ll feel comfortable enough with the cash flow and really the big thing is also building back up kind of my emergency fund. When you do have real estate, you want to make sure you have money aside when errors do happen. A roof could spruce, you have HVACs, there’s a lot of expensive items that may need repair in the future.

Mindy: Right. So we briefly talked on side hustles. The pool kid is now gone and you don’t work for the property management company anymore, is that correct?

Drew: That is correct.

Mindy: Okay, so what are your current side hustles?

Drew: So, other than the real estate, I do run my blog where I talk about financial independence. I talk about real estate investing and dividend investing. So working on that. I am also working on a house hacking course. So there’s a couple of other ones right now and I have a few others that are still a little too early to talk about.

Mindy: Okay. What has been your biggest challenge with the house hacking?

Drew: Where I am currently, D.C. real estate, the prices keep going up. And the thing with single-family homes, people talk about cap rates. That’s not really good metrics for residential properties because people are willing to pay for a house where they think it’s worth to live there as opposed to the income it would generate. So if you’re in a good school district or desirable neighborhood, it’s tough to make the numbers work sometimes. I think now, one out of every three properties in D.C. is over a million dollars. And I definitely wouldn’t recommend doing a million dollar house hacking.

Mindy: No.

Scott: I mean, a lot of people though, the prices in D.C. just seem in general compared to what a lot of people are out in places where you can buy a house for $100,000. The way you’re doing it which I think is really smart and the way my friend is doing it is hey, I’m going to buy in a nice part of town that I would want to be in and I’m kind of proud to own, but I’m going to rent it out by room, and that’s going to allow me to generate a substantially more cash flow than I could if I rented out the whole thing to a single tenant or whatever it is.

So I think that’s a fantastic way to get around this problem in the more expensive markets. Have you found that house hacking is a repeatable, profitable strategy for D.C. folks at today’s prices? For example, could you find another house hack at today’s prices?

Drew: You definitely could. It would be more challenging in the neighborhood that I am in currently just because property values have gone up probably 40-50% in the neighborhood I’m in in the last couple of years. But there are still emerging neighborhoods or neighborhoods going through gentrification where you can make it work.

Mindy: Being in these gentrified neighborhoods is a really great place to be in. You’re not paying the top dollar that some of these other neighborhoods have already gone through, the rehabilitation process. Scott’s first property is in a gentrifying neighborhood and the way that you look at the growth of Denver, it was very clear if you did a little bit of calculations, this is the next big spot. So Scott, would you say that’s true?

Scott: Yeah, I think that if you do your homework—and let me know what your opinion is on this, Drew—but my opinion is that if you do your homework and you study the areas, you can tell what areas are likely to appreciate greater than market averages over time. But you can’t tell when that’s going to happen or by how much.

I think that you can kind of increase your odds of getting a good return by doing what I did and thinking hm, this looks like the next spot of town that’s going to improve because it has to, because of all the developments that’s going in there and the way the city works. But I certainly was not expecting the amount of appreciation I got in the time period that I’ve got. How do you feel, Drew?

Drew: I definitely agree. If you spend some time looking around neighborhoods, you can tell where the momentum might pick up and where people might start moving to. Oftentimes, it’s a little generic, but I look for coffee shops or I look for neighborhood bars popping up.

One thing that is very interesting to look for, a lot of cities and counties, their building permits are public and the zoning process for a developer to build something a little bit more sizeable, so an apartment building or a condo building with a couple dozen units or even a couple hundred units, all those records are on file and you can see that oh, along this road, there’s three apartment buildings going up.

It might be a year or two before they open their doors but if you have a couple hundred people now living within three blocks of this place, you’re going to start having bars and restaurants and grocery stores come in and really everything starts feeding off each other.

Mindy: Yeah, and Starbucks pays a lot of money to do research in these up and coming neighborhoods and they’re not going into neighborhoods that aren’t popping up. When a Starbucks opens up, you’re like, oh. That’s a great place to live. But they already know that that’s a great place to live. They got their properties super cheap. If you can find out when they’re permitting their stores, that would be a really great way to get in even earlier than the ground floor.

Drew: Absolutely. That’s a great one. People always talk about the Starbucks a factor in some areas. Even the Whole Foods effect. Or any organic grocer.

Mindy: Yeah, and Amazon, have you read about this—they have a new unmanned store? You have to have an Amazon Prime account to get into it and everything is RFID-chipped or whatever. So you walk through and you put everything in your cart and you just leave, and it gets automatically billed to your Amazon account. If there’s one popping up in your neighborhood, that’s a good neighborhood to be in.

Drew: Wow, that’s awesome.

Scott: I have to check one of those out.

Mindy: They only have the first one in Seattle right now but I would look for the new HQ to have a lot of properties around it popping up around it.

Scott: So all these people can move in and no jobs.

Mindy: No, there’s probably jobs too.

Drew: D.C.’s on the finalists list for the new Amazon headquarters, so fingers crossed.

Mindy: So is Denver.

Scott: Yeah, we’ll see. Competing there.

Mindy: Yes. I don’t think it’s going to be Denver but hopefully I’m wrong.

Scott: No, so it sounds like you’ve had a great career here and basically you’re almost done. Maybe five, six, seven years after you started, it’s gone pretty well. That’s incredible. That’s what I think a lot of people that are coming out of college needs to hear, is your story. How you did it through this combination of four or five different things that you did, the hard work and the hustle throughout, and the discipline. And now, you’ve just really set yourself up to do really kind of whatever you want for the rest of your life. Do you have anything to add to that before we go onto the Famous Four or does that pretty much cover it?

Drew: That pretty much covers it. You know, there’s this frugality, savings, and investing. You do those three and they’ll take you to good places.

Mindy: I’m going to add one. Hard work. You didn’t just sit there and do nothing and have all of this just come to you because you’re such a handsome guy. Because you’re such a nice person. Because you drove the kid to swimming at 3:45. You got here because you drove the kid to swimming at 3:45 and that’s not something that a lot of people are willing to do. Oh, I could never do that. I could never get up early.

I think hard work really pays off and doing these things and when you’re 25, 27, you don’t need a ton of sleep. Your body will just recharge itself. So, do it while you’re young. And do all of your friends make a million dollars a year? Probably not. I mean, maybe, you’re in D.C., that’s a stupid question to ask but I mean, all of your friends are living like college students. You can live like a college student, too.

You’re not making these huge sacrifices. You know it’s a lot more difficult to make these huge sacrifices when you’re 40 years old and you have kids and you know, you’ve got a different life. But when your adulthood is just starting, live as frugally as you can and bank all the cash you can.

Drew: You hit on something, actually, that really resonated with me. One of the best pieces of advice I ever actually received as to live like a college student for as long as you possibly can. You know, I mean college, some of the most fun times of life but I don’t think a lot of us had any disposable income. So just because you have a paycheck, it doesn’t mean you need to start spending money wildly.

Mindy: Yeah, I mean spend money on good beer.

Scott: Yeah, I love it. I do drink a little bit of nicer beer than I did in college. I think I was drinking Natural Light for four years there. I’ve graduated onto Coors Light now.

Mindy: Denver’s going to kick you out.

Scott: We’ve got some local breweries so a little nicer now. Yes.

Mindy: Denver’s going to kick you out for Natural Light.

Scott: I think it’s really great though and I think the key, what we should point out here is that doing this while you’re young and out of college is the key. I mean, the stakes are really high for doing what you’ve done now. By this point in your life, rather than starting at this point in your life. If you started at age 27, it would have been exponentially more difficult for you to make those changes that you needed to do to get those savings rate, start those side hustles, get up at 3:00 o’clock in the morning for one of them. Like, that stuff is not really as feasible for older folks that are a little bit farther along in life.

So yeah, I think the fact that you’ve done those things, it’s just going to set you up for the rest of your life and I think that’s something, we, Mindy, as our job is to crack that nut for the people that are even a little older than Drew. Because I think we’ve got a formula here that works really well for the graduating college student. How do we translate that to the folks that are a little older?

Mindy: The live-in flip.

Scott: The live-in flip. Yeah.

Mindy: I like the live-in flip a lot. You can do that at any age.

Scott: If you want to learn more about the live-in flip, you can listen to episode 5 of the BiggerPockets Money show where we interviewed Mindy and learned a lot more about that.

Mindy: That’s essentially what Drew is doing, is living in his flip. Did you live in the property that you were renovating or did you move in after the renovations were complete?

Drew: A bit of both. I did not move in immediately because there’s a lot of demo. But once things were framed up and cleaned up, I definitely moved in before it was finished and I was doing a lot of the finishes at night after work.

Mindy: Yeah, and living in the property that you’re flipping kind of covers two bases. You need a place to live so here’s a place to live. And you’re not paying extra rent or extra mortgage payments on some other property. And you can work on it. You’re not driving over there. I don’t know about D.C. traffic. I’ve heard it’s a little tight sometimes. You’re not driving over there after work to try and squeeze in a couple of hours. You’re driving home and then you can squeeze in like three or four hours and just go to bed.

That’s something you can do at any age but really even house hacking. You can live in one half of a duplex and rent out the other half. You don’t have to do the house hacking that Drew is doing where you live in the property and rent out extra bedrooms. Although you could certainly do that. I have a friend who has a house hack, they rent out the whole basement to somebody who is actually a travelling musician. So she’s never home. And now she’s getting married so she spends most of her time at her boyfriend’s house but she doesn’t want to move in yet or whatever. So she still has this place that she pays rent on and doesn’t actually live there ever. I mean, that’s the sweetest gig if you can find some sort of travelling person that’s never home.

Drew: That’s the best roommate ever.

Scott: Well, awesome. Let’s go ahead and move onto our Famous Four and close up here.

Mindy: All right. So Drew, what is your favorite finance book?

Drew: You mean other than your book and Scott’s book?

Mindy: Yes, other than How to Sell Your Home and Set for Life.

Drew: I’d have to go with The Millionaire Next Door or Rich Dad, Poor Dad.

Mindy: So Rich Dad, Poor Dad is the most recommended book on the BiggerPockets real estate podcast. And The Millionaire Next Door does not get enough love. It should be everybody’s favorite book. That is such an amazing book and it’s so powerful. You live next door to a millionaire you just don’t know it. They don’t have flashy cars. They don’t have flashy things. They save a lot of money. They’re just regular people. They drive Ford F-150s.

Drew: You mean they don’t drive brand new cars and have McMansions and go on lavish vacations all the time?

Mindy: They don’t. Those people are not millionaires, contrary to what you may believe by their lavish exterior lifestyle.

Scott: Now, that’s one of my favorite books as well. Possibly my favorite book on building wealth. And what’s great about it is he has these kinds of anecdotes about who these people are individually but it’s also such a long-term, data-driven study on millionaires and their habits, their mannerisms, where they live, what they do. All that kind of stuff. It’s just fascinating to think about. And remember, at the time it was written, I think it was in the ‘80s, a millionaire meant a lot more than it does today. These are folks that would probably have two, three, four million dollars in 2018 dollars.

Mindy: Yeah.

Scott: Awesome. So what was your biggest money mistake, if you have any?

Drew: I was definitely a little reluctant to start investing.

Mindy: You started investing when you were what, 20? 21? Were you supposed to start when you’re 13?

Drew: So I started college right as the whole world was falling apart and I was working my way through college a bit and I had a little extra income here and there. And 2012, 2013, 2014, I kept thinking we were going to have another recession and I was reluctant to put money into the stock market and missed out on some good years of compounding. So definitely just not jumping in right away. I’m young and I have plenty of time to recover if I do lose money on an investment.

Mindy: You know what? That’s a great thing. I’m young and I have time to recover if I lose money on an investment. Perfect.

Scott: Yeah, his downside is he has a ten-year career instead of seven-year career.

Mindy: Right.

Drew: Man, those last three years would be brutal.

Mindy: Okay, what is your best piece of advice for people who are just starting out?

Drew: I’d definitely say live like a college student for as long as possible. Not so much the hosting keg parties on a Tuesday or pulling a Van Wilder, but referring more to your budget and your spending habits. I mean, as I mentioned earlier, most folks didn’t have a lavish budget in college. We lived on a spaghetti budget, you know. Ramen and the dining hall. So just because you have a paycheck doesn’t mean you should develop a caviar taste.

Mindy: Oh, good point. Yeah, my husband said that when he graduated from college, the first thing he did after he got his new job was go out and buy a steak. But he was never able to have meat in his diet because it was too expensive. It was always pasta or peanut butter and he was like, that was the best thing ever. I’m like, I’m so sad for you but yeah. You don’t need meat to live. You can eat a vegetarian pasta lifestyle for a whole lot less.

Scott: So speaking of these parties with the kegs and all of that you were just mentioning, what is your favorite joke to tell at parties?

Drew: Jeez. Well, go throw a party and you’ll find out.

Scott: Aw, what a copout.

Mindy: So Scott is going to have a party for you the next time you’re in town. Let me know. I’ll set it up.

Scott: Yeah, we’ll put you on stage and you’ll have a mic and you’ll just have the floor for ten minutes telling jokes.

Mindy: That’s a great idea.

Drew: I’m here all week, thank you very much.

Mindy: Okay, Drew. Before we wrap up, where can people find out more about you?

Drew: Definitely. They can go to my website, GuyonFire.us. I’m also on Twitter. Guyon_Fire. Or they can send me an e-mail, [email protected].

Mindy: Awesome. Thank you so much.

Scott: Yeah, I definitely recommend that you check out the site. I’ve enjoyed it and as I mentioned, so does one of my really good buddies from home that I grew up with. So you have a couple of huge fans, Drew.

Drew: Glad to hear.

Mindy: Drew, thank you so much for your time today. I really appreciate you coming out and sharing your house hacking story. I think it’s really important to share that so many people are doing this house hacking now. I did it back when it was called having a roommate, but then Brandon Turner created this whole new term and it’s a really, really, really great way to live for free or significantly reduced. I did it when I was younger.

I think I was 26 when I was doing it and my brother was my roommate. And that was really awesome. I think it’s really telling how many people come on the show do this exact same thing, some form of house hack or some form of reducing their living costs and that’s really awesome. So thank you very much for your time today and I hope to see you around soon.

Drew: Thanks for having me.

Scott: Thanks, Drew.

Mindy: All right, so that was Drew from Guy on Fire. I am so excited to share his story with you, not just because he’s got a great story but to reiterate these points. A high savings rate, a focus on frugality, and the house hacking. The cutting out or cutting down your biggest expense which is housing. I see this over and over again from so many people who are on this show and from so many people in real life that I know. House hacking is such a powerful tool and it’s really not that hard to do.

Scott: Yeah, I love it. And I liked it because this is a perspective that I really identify with as a single young man around the same age as Drew. I love how we have different perspectives on this show here. We have Drew who is a 27-year-old with few obligations who can hustle and optimize in all these ways towards financial freedom.

We had The Frugal Woods—I think they’re actually next week for us. We’ve had the Waffles on Wednesdays. All these folks that are in different life situations, families, people who are thinking about starting families, single—this is an example of why it’s so important and so incredibly powerful to take care of this financial part of this equation. To complete your financial independence prior to moving onto other stages in life. It’s so efficient and so effective for them.

Mindy: Yeah, we didn’t discover financial independence until—we meaning my husband and I—didn’t discover it, I mean the concept didn’t even exist in our minds until 2012 when he was having a really bad day at work. You do the math and you might think this is garbage. This is a lie. He’s selling something or whatever but you do the math and you realize it’s not that hard. It can happen for everyone and it is a big deal. It’s a Friends quote you won’t even get. That’s a quote from a TV show.

Scott: Is that on before I was born?

Mindy: Shut up, Scott. I think it was out after you were born. Maybe you were one. Anyway, so yeah, I hope you enjoyed the show. Please, if you have any questions about this episode, we have a new forum on the BiggerPockets forums called BiggerPockets Money. There will be a thread designed specifically just to discuss this particular episode and we would love to hear your thoughts. So give us a shout-out at BiggerPockets.com/forums and the BP Money Forum will be right there at the top. Awesome, so Scott, should we get out of here?

Scott: Let’s get out of here, Mindy.

Mindy: Okay. From Episode 9 of the BiggerPockets Money podcast, this is Mindy Jensen, over and out.