Paying Off Debt Through Conscious Spending and Real Estate Investing

Mindy:
Welcome to the BiggerPockets Money podcast, show number 114 where we interview Ashley Kehr, the host of the new Real Estate Rookie podcast, and hear her debt pay off story through conscious spending and real estate investing.

Ashley:
And I’ve felt a lot more comfortable too as my portfolio has grown because if one property is vacant, I have the other properties’ cashflow to cover that so it would have to be a significant amount of vacancies for me to ever have to pull money out of my own pocket to pay a mortgage.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen and with me, as always is my magnificent cohost Scott Trench. Scott and I are here to make financial independence less scary, less just for somebody else. And show you that by following the proven steps you can put yourself on the road to early financial freedom, and get money out of the way so you can lead your best life.

Scott:
Wherever you are in your financial or life journey, you can begin rapidly moving towards a position capable of generating a great income, saving a huge percentage of that income, and setting yourself up to make larger, and larger investments on your way to financial freedom. Whether you want to retire early, and travel the world, go on to make big time investments, and assets like real estate or start your own business, we’ll help you build a financial position capable of launching yourself towards your dreams.

Mindy:
Scott, I am super excited for today’s guest because she is the host of the new Real Estate Rookie podcast, the BiggerPockets is releasing on Thursday. Spoiler alert. We’re launching a brand new podcast, and I’m so excited for her show. I’m so excited for her and her podcast host. And I feel like the show fills a hole in our light up.

Scott:
Yeah. Our BiggerPockets, real estate podcast, the OG podcast, as referred to later in this episode, is really getting to be a little bit more advanced, which is a good thing, right? Because Brandon and David Green are so advanced as investors, and their portfolios are scaling so much. I imagine you … Don’t know for sure, but I imagine they’re both multi multimillionaires. And we thought that a show that put them back to the starting point with a Ashley and Felipe.

Scott:
Felipe will be our guess next week on the BiggerPockets Money Show podcast would be a great way to get back to the roots of helping some of our newer investors get really comfortable speaking the language, and preparing to make their first or next investment on their journey to financial freedom through real estate.

Mindy:
Yup. Brandon and Josh Dorkins started the original podcast, the OG podcast seven years ago, and it makes sense that they would have grown in their investing. And I know there’s a lot of listeners who have grown with them, but seven years ago we were a touch smaller than we are right now. And we’ve attracted a new crowd of investors. They still need to learn the basics. So, I’m super excited for Ashley and Felipe. They were both featured on the OG podcast, in the past, and we just thought they did such a great job.

Mindy:
We decided to bring them back as now the hosts where they can teach you the intro, the beginner, the, “Here’s how I did my first deal.” It’s super inspiring to listen to somebody who just bought their 17th 100 unit apartment complex, but when you’re struggling to buy your first one, or you’re not sure where to go to … Well, if you’re not sure where to go to find the information, you go to biggerpockets.com. But if you’re not sure what to do with the knowledge that you have, if you’re not sure how to put that into place, you listen to the rookie real estate, the Real Estate Rookie podcast, someday that’ll flow off my tongue-

Scott:
[crosstalk 00:03:49].

Mindy:
… And you will learn from the beginnings, and you can hear people who are more closer to your level.

Scott:
Yeah, it’s going to be real. It’s going to be people who are making mistakes, figuring out as they go along, and getting started in this messy business of real estate investing. And not everyone is perfect, and not everyone has the hundreds of mental models that are necessary to be making great real estate decisions, and answer to every real estate question that someone maybe like Brandon, or David, or another master. These are people that are just getting started, and learning on their journey. So, a good supplement to, an addition to our real estate podcast, the money show, and our business podcast.

Mindy:
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Mindy:
Okay. Huge thanks to the sponsor of today’s show. Ashley Kehr from the brand new BiggerPockets Rookie Real Estate podcast. Welcome to the BiggerPockets Money show. I’m super excited to have you today. I cannot wait to share your story with our listeners.

Ashley:
Thank you very much for having me and I’m really glad to be here to share it because I feel like I have a unique way that I did it using real estate.

Mindy:
Oh, Oh, Oh. Using real estate. Maybe in your real life, that’s a unique way, but in BiggerPockets-

Ashley:
Yeah, that is true.

Mindy:
I don’t mean to belittle your accomplishments, but-

Ashley:
No.

Mindy:
… That’s not so unique in real … But you know what? That’s really interesting because in my real life, nobody cares about real estate. Nobody talks about it. Nobody wants to hear me talk about it. They’re all like, “Eh, I don’t want to hear it.” Unless they have a question. Then they’re like, “Oh hey, what about this?” “Oh well here’s the answer. And by the way … ” They’re like, “No, I’m done. Good. Thanks. Bye.” So-

Ashley:
Yeah, I think of the Dave Ramsey method as the way to do your money and it’s different from that. I guess I should say that way.

Mindy:
Well, so, Dave Ramsey has a great model, but it’s certainly not the only model. So, well, let’s hear your money story. Where does your journey with money begin?

Ashley:
Okay, well it started with Dave Ramsey. And I am a huge fan, big supporter. I just varied off of his path per se. So, about three years ago, I read the Dave Ramsey’s book, the Money Makeover, and it absolutely just changed my mind, changed my thinking. Up until then, my husband owns a dairy farm, so we had a lot of farm equipment that we had loans on, and we never struggled. We didn’t really live paycheck to paycheck, but we also weren’t saving and investing or doing anything like that.

Ashley:
So, after reading the book, I approached him about why don’t we start paying down some of our loans? So, he wasn’t completely on board. So, I started with my student loans. We were fortunate enough to live on just his income. So, any of my income we would put towards the student loans, and I was able to pay those off pretty quick. About 15,000.

Scott:
Well, let’s go back even before this. So, what was your position leading up to the discovery of Dave Ramsey? Did you have debt? What were you guys doing? What your asset income-ish allocation there?

Ashley:
So, when I graduated college with a finance and accounting degree, and I lasted at a CPA firm for about six months before I quit. And my husband had a dairy farm, so he actually lived in his grandmother’s old house on the farm. And so, we got married, and we had our first child. I started working as a property manager, and we decided to build a house. So, at this time we lived in a paid for house. And so, we took on our first mortgage building this house. And at the time my husband had loans on his farm equipment. We had my student loans, and we also had two vehicle loans.

Scott:
And then the mortgage.

Ashley:
Yeah. And my parents and his parents were never big on credit cards, so neither of us ever had any credit card debt or anything like that, which we’re both thankful for that our parents taught us the evil side of credit cards.

Scott:
How much total debt outside of the mortgage did you have when you discovered Dave Ramsey?

Ashley:
That was about 169,000.

Scott:
Oh my gosh. Okay. So, you had 169,000 non-mortgage debt. And what was your general trend in a given year for debt accumulation, were you steadily accumulating debt or were you starting to pay it off? Were you generating any savings or investments throughout this period?

Ashley:
Well, about, every year in November, my husband would look at his profit and loss from the farm, and say, “I need to spend more money. I’m going to go buy this piece of equipment, and just put a loan on it.” And he was very good about it. He usually paid off his loans ahead of time anyways. And like our vehicles, we always paid those off early, but it could have been a lot better where we just were debt free, paid all in cash. So, the big turning point was when we actually took all of those loan payments and saw what those monthly payments were and what they told up to, and it was actually with our mortgages about $3,500 a month.

Scott:
Wow. And so, you went through that after reading Dave Ramsey? [crosstalk 00:11:56]-

Ashley:
Yeah, so after reading that, yeah.

Scott:
Okay. Awesome. So, you size all these things up, $169,000 debt, $3,500 a month. And what happens next?

Ashley:
So, we take all my student loans first. That was about 15,000, and then there was a low minimum payment. But so I was like, “Hey, we have this extra, whatever it was $250 a month.” And so, then we started to tackle a home equity loan we had, and we had put this on our old house to help pay for our new house. So, we paid that off. We just throwing as much money as we could. And at that time I had had rental properties for about three years then. And so, any rent income, any of my W2 income, and then any extra money my husband had from the farm, we would just throw it towards that.

Scott:
Okay. Let me ask you a couple of question. So, I’m trying to get a chronological picture how this all developed. So, when you discovered Dave Ramsey, he had $169,000 in debt, did you already have rental properties as well?

Ashley:
Yeah, so I had the rentals, and that’s why I feel like I did Dave Ramsey’s plan backwards and as we were paying off that, I still continued to buy properties too.

Scott:
Okay. So, let’s start this. What year did you graduate college?

Ashley:
That’d be 2012.

Scott:
All right. 2012. And what year did you discover Dave Ramsey?

Ashley:
2017.

Scott:
2017. Okay. So, in those five years you accumulated $169,000 in debt. You started what sounds like a reasonably successful dairy farm here or continue to grow it. And you were able to accumulate three rental properties in that period as well?

Ashley:
No, I accumulated more than that by the time we found Dave Ramsey. I bought my first property in 2014-

Scott:
Got it.

Ashley:
… And then between 14 and 17 I had three properties. And then in 2017 early on I bought about another six properties, and then we started paying off debt like the fall of 2017, and then in 2018 I bought another six, I believe it was too.

Scott:
Okay. So, what I’m trying to put together here is out of college you had some student loan debt, and this farm, how did you go about in the early years before the … It sounds like a turning point in your financial journey was when you discovered Dave Ramsey, and began paying off at least all of your consumer debt. Well, we’ll find out what the real estate stuff later I’m sure. But what I’m trying to figure out is how you and your husband were able to accumulate both rental properties, and debt, and whether that was intentional or what the approach was in those years following your graduation.

Ashley:
So, I’ve kept my real estate business separate from my family I guess. So, I never take any money from our family fund, or my husband’s income, or my income. I’ve either saved some extra rental income, but a lot of times I have taken on partners. So, I have money partners and most of my deals I put very little of my own money into them. So, the startup cost is so low that it’s not hurting my family financially to put in this 20% down payment.

Scott:
Got it. So, you started at a CPA firm. Would you ever did any other work after that?

Ashley:
Yeah, so my husband told me that if I got pregnant I could quit my job. So, I got pregnant, and quit my job. And I was just going to be a stay at home mom, and be a farmer’s wife. And my neighbor growing up, he owned a bunch of investments, auto dealerships, a bunch of different businesses and you wanted someone to keep them organized and like, “You’ll just be part time.” And so, I started working about 15 hours a week, and then I ended up, I took over 80 residential units that I was managing for him in some commercial. So, it became a full time job from there.

Scott:
Got it. Okay. So, this is starting to come together for me. So, you quit your job, and then you get pregnant, and then you started taking on part time work, and then slowly more work. And that leads to property management. Around what time do you start managing this 80 units?

Ashley:
Well, I started with 40, right away when I first started working for him. It would’ve been 2013. And then by 2016 I’d taken on the other 40. And then recently I helped him develop a 16 unit patio home complex. We build a 40,000 square foot dealership together. And so, we started an insurance agency. I got my insurance license. So, it’s been really great to learn all these different things working for him. But now I’m also earning insurance commissions so that really helped pay off like the last of our debt was that commission too.

Scott:
Love it. So, in 2013, you start managing rental property. And at this point in time what I’m guessing is that you guys are still accumulating lots of consumer debt. You’re in the years of buildup in that period. It sounds like you don’t have a lot of disposable income as a family in this time period. Is that right? 2013, 2014?

Ashley:
The problem was that we were spending as we would, we were spending whatever we wanted on groceries. We weren’t budgeting at all. I was traveling with our newborn, we did have the disposable income where sometimes we would take a couple thousand and throw it towards a loan or whatever, but we had no plan in place, and we were just spending frivolously, nothing saved. We could’ve pay debt off a lot faster sooner, if we had been conscious of our spending.

Scott:
Well, love it. Love it. And it’s in this context that you’re able to purchase your first rental property. Right?

Ashley:
Mm-hmm (affirmative). Yeah.

Scott:
So, can you walk us through that journey maybe with your first rental?

Ashley:
Yeah, so my first rental was actually with a partner, and it was the guy that I was working for, his son, I didn’t have enough money to buy it. I didn’t really know what to do to get a mortgage, stuff like that on an investment property. So, I knew that he had cash that he had saved up, and I started talking to him about investing. So, we started looking at properties, and the first one we looked at, actually, we ended up buying. And we became partners 50-50.

Ashley:
But I had the experience because I had worked for his dad for a year and a half managing his properties. And my partner, he wanted to be 100% passive but just have a good investment in place. So, what we did was we are 50-50 equity partners, and then he held the mortgage on the property also. So, he also received five and a half percent interest, and every month he received a principal and interest payment from the LLC we created on the property.

Ashley:
Then after that we just refinanced that property with a bank, and he continued to hold the mortgage on that property while we took the refinance money, and bought another one. And then we just continued to do that to buy several more.

Scott:
Love this. So, so you didn’t have any money, and you found somebody who was willing to take on the mortgage for you in exchange for basically doing none of the work on this property?

Ashley:
Yes.

Scott:
And you’re willing to do all the work. And that’s how you get a 50-50.

Ashley:
Yeah.

Scott:
Now, and this is something that comes up a lot with new investors, what would your thoughts be on someone following in your footsteps, in your financial position? Do you think that … Is it different in 2020 or is it the same approach there?

Ashley:
I think it’s the same because it didn’t affect my family at all where I was telling my family, “We can no longer do this because I’m taking this money and putting it into real estate.” And at the time, we just spent, we didn’t think we had money, even though we did, we were just spending it on whatever. And we probably could’ve saved to buy a property, but I couldn’t have paid off my debt as fast once I was money conscious without that rental income. That really helped expedite the process for sure. And I think that’s still possible today to do. And there are many partners out there.

Mindy:
So, let’s look at this. The numbers for this first property, it sounds like your partner paid 100% of the purchase price.

Ashley:
Yup. It was 74,000. Yeah.

Mindy:
Okay, so he gives 74,000 to buy a house. And now when you say you’re 50-50 partners, does that mean when the rent comes in, you first pay the five percent mortgage and then split the profits after that?

Ashley:
Yup. So, after any expenses, the profit, the cashflow would be split between us.

Mindy:
Okay. And that is an exchange for him giving you money, and then hands off completely. Now, this sounds like a unicorn situation, but it’s really not a unicorn situation because there are people out there, they’re called private money lenders. There are people out there who want to invest in real estate because they know it’s a good investment, but they have no interest in doing it. They may not know what they’re doing, they know it’s good, but they don’t want to put any time into it.

Mindy:
So, for people who are listening, who are in Ashley’s similar situation, this does exist. And how did you find him? Did you just sit there, and he called you up and said, “Hey, any chance you want to invest?” Or did you put this out there and talk to him and say, “Hey, I’m looking.”

Ashley:
Yeah, I definitely had to approach him about it, but it was, I call it planting the seed. I, first would just bring it up and not even say anything about being partners. And then, I bring it up again and say, “You know what? Like would you be interested in investing?” And I tried to make it an opportunity for him, and not that I needed him, which obviously he knows now, but it’s worked out really well. So, we bought the house for 74,000, and then, we actually just sold it, so we held it for five years, and it sold for 105,000.

Mindy:
Oh wow.

Ashley:
And the whole time the tenants paid down some of the equity in the house too.

Mindy:
And they paid rent, and they paid the mortgage, and-

Ashley:
Yeah.

Scott:
Well, and a big part of the context here is that you worked for this investor’s father, right?

Ashley:
Right.

Scott:
So, you got to know that family over time and use that. Now this deal, was this one of the best deals you’d come across in your searches or was this just a one that you thought was very repeatable?

Ashley:
It was definitely not the best deal because when I first started out, I did not fine tune my numbers and run my numbers, and that’s why we actually sold it was because I can find better deals now. But it was great to start out with. It was a little duplex. We only had to remodel one unit, and it was just the cosmetic updates in the upstairs. It was a perfect good first property because I liked the duplex for first property because you get that experience with two tenants instead of just one for a single family, and it’s not overwhelming having more than two.

Scott:
Got it. Okay. And what market is this?

Ashley:
South of Buffalo, New York in the South towns.

Scott:
Got it. Okay. Yeah. Because some of our listeners are thinking $74,000 duplex, that doesn’t exist. That never existed in 2013. What is this lady talking about? But yes, these exist all over the place-

Mindy:
Some of our hosts are saying that too.

Scott:
Yeah, and to some people’s astonishment, I think New York actually has some of the very best cashflow markets in the country as far as we can tell right there in the Northeast under everyone’s nose.

Ashley:
Yeah. I’ve actually bought a couple duplexes for 20,000 from my retiring investment, but yeah, the only thing that kills us is property taxes here because you know you can get that mortgage paid off. You’re still paying that high property tax every year.

Mindy:
You know what? That’s a really good point because out here in Colorado we are positively spoiled by practically free property taxes. And I have lived in those places where … Like my last house, my property tax payment monthly is my mortgage payment here. My taxes were $14,000 a year. When I sold the house, they bumped up to like $20,000 a year. That’s something that’s really important to keep track of that I think a lot of people gloss over or don’t even think about it all because they are what they are.

Mindy:
There’s not a lot of negotiating and property taxes, but there’s a lot of choosing markets, and if you’re investing out of state anyway, if you’re listening to this and you’re thinking, “Ooh, New York would be great.” Make sure you factor in those high property taxes. What are your property taxes on that that just sold for 105,000? Those ones?

Ashley:
These were 2,500. But I have like the ones that were 20,000, those are 1500 a year. I mean, it really varies by town in here, but I just think that it really is important to look at the property taxes too because I almost would rather go out of state, and that’s why I’ve been looking. And it’s a higher entry where yeah, you can come here and get your $70,000 duplex, and it’s a lower entry fee to get into real estate investing.

Ashley:
But once I have the house paid off, my cashflow will be higher, and that high going out of state to a higher price point, yes, I’m paying a lot more up front, but once that is paid off, I’m just paying the low property taxes. And your high mortgage payment is building new equity where your property taxes are not money gone, nothing you’ll ever see returned to you.

Mindy:
Yes.

Scott:
That’s fascinating. A lot of investors look at it the complete opposite way. So, I think your contrarian approach here is really interesting where they want to go to the lower price markets. Most of which, by the way, I’m unable to find very many markets at all with low price points in that $70,000 duplex or $70,000 per unit even that have low property taxes as a percentage of their rent or property value. They’re all very high it seems like.

Ashley:
Yeah. And one thing around us at least is the school taxes are the highest. And so, what I found our county does is every year they set out an Excel spreadsheet they can find on their website. So, maybe other counties have this too. And it shows if you live in this town what your property taxes are, and then it has some overlapping. So, like there might be a town with like really expensive property taxes for that school, but you might be on the outside that you’re paying school taxes for another school that’s a lot cheaper.

Ashley:
So, right now we’ve been trying to look in those little like niches where it’s a great town, everyone wants to live in, but you’re paying property taxes for this cheaper school. And that doesn’t necessarily mean that you’re sending kids to that school. You look at your senior residence, which have been great for us, or even young couples that aren’t sending anybody to school that would still love to be in that town, and not care what actual district they’re in.

Scott:
So, there’s two rules that rental property investors use when analyzing markets, right? One is called the one percent rule, and that means that if your property is $100,000 in price, you’d expect $1,000 a month in rent, to meet the one percent rule. So, around the country, some people are thinking, “That’s insanity. There’s no such thing as the one percent rule.” And that’s probably increasingly the sentiment around this country lately as the market’s been booming.

Scott:
And other people are like, “Oh, that’s easy. I can find that anywhere I like, which is probably what you’re thinking, Ashley.” A corollary to that rule is the 50% rule where you say, “Okay, if my rents are $1,000, then 50% of that is my fixed expenses like taxes, insurance, CapEx, maintenance, vacancy, property management, those kinds of things.” And that allows you to do a very rough and dirty analysis. And I hate both of these rules for exactly the reason that we just discussed here, which is that property taxes can vary dramatically, right?

Scott:
Your insurance rates are dramatically different than what a Hawaiian or California investor’s going to get, or a Florida investor’s going to see. Your CapEx, and maintenance expense, in my opinion, are much more highly correlated with your vacancy expense than with your rents, right? Because I’d have to repair and rehab my property more frequently if I have higher tenant turnover, and much less frequently if I have lower tenant turnover. And so, I think that all of those things are correlated to give a dramatically different profile of cashflow than what some people expect in certain very low rent markets and certain very high rent markets. That’s my rant.

Ashley:
Yeah, here we can easily hit like the two percent rule very easily, but for 50%, that’s very hard to get with the high property taxes. And actually one of the duplexes I have is in a flood zone too. So, with that insurance, it’s the low barrier of entry. It’s hard to resist a $20,000 duplex that’s going to bring in $1,300 a month of rent.

Scott:
I can flood every three years.

Mindy:
That’s a really good point though. It’s hard to resist this really low priced property, but just because it’s low price doesn’t mean that it’s priced well. It doesn’t mean that it’s a good deal. It doesn’t mean that the rents are going to even remotely cover your expenses, and your monthly outlay. And I think that a lot of people who haven’t done the research, and learned all the things that they have to account for during their analysis of the property will see, “Oh, it’s a $20,000 duplex, it rents for 1300.” That’s the … What is that? Like the 14% rule. I can’t do math this quickly.

Mindy:
I should have asked these numbers in advance so I could whip out my calculator and seem all smart. But that’s huge. That’s like the seven percent rule. I just did it in my head. That’s the seven percent rule. That doesn’t really happen because how much is vacancy? What neighborhood is it in? And I think … Oh wow, I feel a plug coming on. I think this is the information that will be covered in a new little podcast called the BiggePockets Real Estate Rookie Podcast. Am I right?

Ashley:
And that is correct.

Mindy:
So, this episode is airing March 2nd, and the Real Estate Rookie podcast is airing on March 5th as an introduction. And then its regularly scheduled day is Wednesday. So, you will have an opportunity to listen to money on Mondays, oh, money on Mondays. Tuesday is the business show, Wednesday is the Real Estate Rookie podcast, and Thursday will be the Real Estate Investing podcast. The original podcast that BiggerPockets has had for 100 years, or whatever.

Ashley:
The OG.

Mindy:
The OG podcast. So, yeah, I mean when you go through these numbers, and you look at it just on the outset, “Oh my goodness, I have to buy 100 of these.” Well no, because then you have to buy 100 furnaces, and 100 water heaters, 100 air conditioners, and 100 roofs, and 100 … Like you need to really realize that on paper is great, but you have to dive into the numbers a little bit more before you just jump in and buy a property that may actually end up costing you thousands of dollars a month.

Scott:
Yeah, and especially with these properties that hit the extremes, right? And these … Particularly, like the $20,000 duplex is an extreme … You’re taking certain variables in this equation that we use to analyze properties, and taking them to the low end of the spectrum there. And you have to be extra careful when you do that, which it sounds like you were, I know you really know your market and stuff, and are aware of the risks that go along with that. But that’s the challenge that-

Ashley:
Yeah. And there’s so many rules, and criteria, and different things to take into account when finding a deal. And some people want different things too, so you have to account for that. Are you looking for appreciation? Are you looking for cashflow? Down line, are you going to self-manage now or are you going to have property management company? So, that was my issue when I first started out was I’m like, “I’m going to manage them forever. Like this is what I do for a living.” Well, yeah, February 1st I turned everything over to a property management company.”

Ashley:
So, I mean the numbers still work on those deals, thankfully, but I didn’t account for any of that. And I think there’s just so many different variables, and the 50% rule, the one percent rule, like you can still make things work even if they’re not hitting each of those criteria, but then there’s also things you have to watch out for like for these low price point ones that I’m buying.

Ashley:
Like, yes, they were neglected for years. And I think in the one that runs for 1300 I put five grand into it, which still is not a lot for the $20,000 property. But it’s not like I just went, paid that, was completely done with the property, and moved on to the next.

Scott:
Love it.

Mindy:
Yeah. And that’s four months of rent that you just plowed into it. And that’s another way to think of it. “Oh, it needs a new roof. Oh, that’s okay. It’s not that big a deal.” Well that’s $5,000. So, that’s four months of rent at 1,300. Plus, I mean, I’m assuming you paid cash for a $20,000 property or your partner did, but if you’re not paying cash for it, and it needs this influx of cash before you can even get it rented, that’s not tax deductible. That’s not a part of business expense. There’s a lot of different things involved, and maybe the furnace goes out, all the rest of your rent for the year just paid for all the expenses.

Mindy:
So, you don’t even have a profit the first year. You’re breaking even. You’re coming to the property with money in hand in advance before you even start making a dime. So, yeah, it’s probably going to work out. I bet you ran your numbers. So, it’s going to work out for you. But you knew that going into it. And I think where a lot of people get in trouble is they don’t account for that. “Oh it’s $1,300 every month. I’ll just get that. Wait, what do you mean $5,000? I don’t have $5,000.”

Mindy:
And I’ve said this a couple of times before, anytime you buy a house that needs something, the amount of the repair, the cost of the repair is inversely proportionate to how much you have in reserves. And if you have nothing in reserves, you need a new water heater, a new furnace, a new air conditioner, and a new roof. If you have a ton in reserves like you need a new light switch cover or something. So, you know you really need to be prepared for these.

Mindy:
Real estate is so fabulous for generating wealth, but it’s also really easy to lose your shirt just because you didn’t run all of the numbers. Now, I will stop my red, Scott. Step down from my soapbox.

Scott:
All right, hope you’re enjoying the show. We’ll be right back after a word from today’s show sponsor.

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Scott:
Well, let’s do this. So, we talked about this first deal. You found a partner, you had no money. So, you went 50-50. The partner brought the down payment, and underwrote the mortgage, or got the financing for it. After a few years it appreciated in value, so you’re able to cash out, refi, or the partner was, and plow into future investments. Can you walk us through-

Ashley:
We actually did it right away.

Scott:
Wonderful.

Ashley:
We did it within a month, and bought our next property within the next year.

Scott:
Can you walk us through exactly that?

Ashley:
Sure. So, we actually found a small local bank that the guy that I worked for and my partner’s dad had done some business with, and so we sat down and talked with him, and they did it on the commercial side. So, we did a commercial loan on the property, and we had told them which property we wanted to purchase. So, we actually did a portfolio loan that would cover both properties. And my partner could still keep his mortgage on it. And the one we had purchased appraised for 80,000. So, 6,000 more than the one we want to do a purchase was 62,000 to purchase.

Ashley:
And that one appraised for 80 also. So, we had 160,000 that we could work with and we ended up refinancing at 105 taking out … If I knew then what I know now, I probably would have taken the max out, and then put that towards another property. But so we did a portfolio loan for the 105,000, and we then used that to pay for his property, and then we bought another property with a little bit extra.

Scott:
Got it.

Ashley:
Yeah. Right now we do … And that loan was actually … It stays in place so, if we want to pull money back off of it again, we can. So, like we have that max approval 105,000 where we can go and say, “Yeah, we want to off our loan again.” We don’t have to go through the whole loan, and mortgage process again. So, our plan was to keep using that. Well then, when I built my house, and we had our farm house, I actually went and put a line of credit on that, on our old house. And now what we do is we use the line of credit to purchase properties, re-finance them, and then pay the line credit off after we’ve fixed them up.

Mindy:
Okay. We just threw out a couple of different terms. So, can you clarify what a portfolio loan is for people who are listening, who may not have heard of this. And the line of credit is also commonly known as a HELOC. So, if you could explain that too, so people understand.

Ashley:
Sure. So, the portfolio loan, go to a small local bank because they will give you the best … Not always the best rates, but they’ll be the most flexible to work with for you. So, this was where we could put two properties under one mortgage. We had one mortgage payment for two properties. And that way we were able to refinance more our closing costs for less, doing one loan instead of two loans on the two separate properties.

Ashley:
And then for the line of credit, we actually did a commercial mortgage line of credit. It’s different than a home equity because it wasn’t actually either of our homes. So, we couldn’t get the home equity loan, or the home equity line of credit, so we had to get a commercial mortgage line of credit. And so, this was a mortgage filed on the property, but it acts like a line of credit. We still have to pay mortgage tax, but we can withdraw from it as we’d like. And we’re paying interest only on it, on the loan, and then we pay it back. So, there’s no principal payment on the line of credit.

Scott:
Yeah. Now, let me ask you this about the portfolio law, because this is going to be a concept that some of the listeners in BiggerPockets Money haven’t heard before. Would you have used a portfolio loan if you’d had $40,000 in cash and great credit, and income that you could get a conventional loan on? Or was a portfolio loan because you and your investment partner thought that was a just a better option in general than the conventional financing op?

Ashley:
Well, our goal then, and our goal now is always to put in as little cash as possible. So, which I know that’s not a lot of what the debt free community is about, which I follow that community. So, I struggle with it because some days I’m like, “Let’s pay everything off. Let’s own everything free and clear.” But I don’t think I would have gotten as far as I have if we wouldn’t have done that portfolio loan, if they would have taken another chunk of cash, put it at the property.

Ashley:
We did about two and a half years later by a large portfolio from a guy, a bunch of properties from one guy, and he did sell our financing. So, we actually did put some cash out as a down payment for that. And then after a year we ended up refinancing after we fixed it up, and we were able to pay him back, and paid ourselves back.

Scott:
Okay. Got it. Well, I think that’s a great answer, and a great philosophy to go about it. It’s different than how I would approach the business, but I think it’s clearly a right way to go about it, has been very successful for you.

Ashley:
Yeah. And so, one thing that’s very important about doing that though is that you’re buying undervalued properties where every property that I bought, and then went to refinance has appraised for more than I purchased it for. And that’s really important, if you want to pull back all of your money. Yes, there’s a lot of places you can finance the whole property, and find ways to do it, but you want to make sure that you still have equity. So, every property at least has 20% equity into it after I’ve purchased it. So, I think that’s really important to keep in mind that I’m not just leveraging myself 100% on every property.

Scott:
Yeah, it makes perfect sense.

Mindy:
That sounds like a little concept called BRRRR, which stands for bu … I never did get this right.

Ashley:
Buy.

Mindy:
Buy, rehab, rent, refinance, repeat. So, did you do rehab on these properties to make them appraise for more or did you just buy them at undervalue?

Ashley:
I’m doing my first like full rehab right now, but before that we only did cosmetic updates, vinyl plank flooring, painting, maybe new cabinets, new countertops. But, no getting laws or anything like that, but it still worked. Just doing cosmetic updates, increasing rents.

Mindy:
Okay, well that’s still a rehab though. So, you did the BRRRR method, which is available as a book on biggerpockets.com/store, is that it? I’ll put a link in the show notes. The show notes for this show can be found at biggerpockets.com/moneyshow 114. So yeah, that is a really great method of recycling your cash and using the same amount of money to buy more properties. And you said something that was really interesting. I think there are a lot of people who listen to the show, who are on the Dave Ramsey absolutely no debt at all, ever, ever, ever train, which is great, but you can get so much farther by using leverage.

Mindy:
And just because you’re using leverage doesn’t mean you have to use all the leverage. You don’t have to be leveraged to the hilt, and hope that everybody is always rented all the time. Because if even one property is out, then you can’t make your mortgage payment. That’s too much leverage. Any amount of leverage that causes you not to be able to sleep at night is too much leverage for you. So, if you are in the camp where I can’t possibly have a mortgage on my house, then maybe real estate isn’t the best opportunity for you. But if you could use a little bit of leverage to get further, I mean, how many properties did you say you owed now? I lost track because I can’t count that high.

Ashley:
Right now, I have 15 properties. So, it’s 32 units.

Mindy:
Okay. Are any of those completely 100% paid off?

Ashley:
Yes, two of them are.

Mindy:
Okay. So, you still have mortgages then on 13 units?

Ashley:
Yep. So, some of them I have with partners and then … Oh, I’m sorry, three would be paid off, three of them are paid off, and then the rest have … But two of them are mortgages that are held by my partner. So, it’s not a bank financing, but yeah, then the rest have mortgages on them.

Mindy:
Okay.

Scott:
Well love it. Love that so, you’re starting to pay off some of these properties, right? I want to hear about the philosophy of that in a moment here. But first I want to get back to the core story here. So, it sounds like 2013 you buy this first one, you quickly refi the portfolio loan and buy another. Can you give us a quick header overview of what the rest of your real estate investing activity was like until this moment of transition in 2017 when you read Dave Ramsey?

Ashley:
Sure. So, when 2017 started, I believe I had three properties. We built our house in 2016, and I didn’t buy any properties during then. So, in 2017 is actually when I found BiggerPockets. And within a year and a half I tripled my portfolio, just learning that there’s so many different ways to finance a property. And it was just really eyeopening for me, and it got me more motivated and excited. So, then towards the end of 2017, I found Dave Ramsey, and then that’s when we started paying down my student loans.

Ashley:
And then after that we started paying off our home equity loan. And then after that we started paying farm equipment. And then actually I had saved enough money from my rental income to pay off my husband’s farm truck.

Scott:
Love it. So, what is going on in your lifestyle that you change after reading Dave Ramsey? It sounds like you’re bringing in a solid income. I’m not sure what that range is or if you’re willing to disclose that. But it sounds like you’re bringing in more than enough, if you make some changes based on your Dave Ramsey reading to begin paying down debt. What do you do? Do you cut out groceries? What kind of just-

Mindy:
Yeah, she cut out groceries. She stopped eating altogether.

Scott:
She mentioned groceries earlier, which is why I bring that, yeah.

Ashley:
Well, yeah, so, we didn’t budget per se, but I was definitely more money conscious as to what we were spending on groceries because that was just a huge amount that we were spending on the-

Scott:
You didn’t grow them yourself on the farm?

Ashley:
No.

Mindy:
It’s a dairy farm.

Ashley:
Dairy cows, so we have free milk. And then just like, traveling, I cut back on that, spending on clothes, spending on things for the kids. We just cut back on everything because it really was just like the random spending that was really hurting us, or I’m going to stop at Walmart today and pick up one thing, and walk out with 100 things. We both became a lot … And more me, I have to say my husband he never buys anything. But more me, just being more money conscious about that. And then as we started paying them off, we did the Dave Ramsey debt snowball.

Ashley:
So, every month my husband would give me this amount of money from his farm income, and I would, take whatever I had, and put it into our debt payment. And a lot of it was we tried to do an automatic. So, I would set up that he gets paid once a month for milk sales. So, on that day I would get the money transferred to my bank account automatically, and every month I was also taking my W2 income, a portion of that, and putting it right into a specific account that we were using for our debt payments, and the same with my rental income.

Ashley:
The book Profit First. I don’t know if you guys have read that, but it’s all about paying yourself first, and then making sure you pay your expenses and stuff like that. And just puts you in the mindset to be a moneymaker, to earn your income.

Scott:
No, I love it. So, you go from paying roughly nothing, it sounds like an excess on these debts to paying something. What is that? Is that a couple 100 a month? Is that a couple 1,000 a month? And how does that trend over time? Are you accelerating the amount you’re putting towards debt over 2017, 2018?

Ashley:
Yeah, it definitely did accelerate. At first, it was just me using my W2 income, which really wasn’t a lot. My take home pay is about 20,000 after I pay health insurance, and contribute to my 401k. So, I paid off about 15,000 of my student loans within four months. That took just that. Then once my husband started to get involved, and I really started using my rental income, it definitely accelerated. We actually could have been done. We started the fall 2017, and we could have finished beginning of 2019 but our last loan, it was I think 18,000 was the balance on it maybe, but it was at a three percent interest rate. 2.99 percentage, straight.

Ashley:
So, I had a really hard time throwing money at that when we get a lot more in upping our retirement investings, and stuff like that. So, it took us a year to pay off that one just because we took our time.

Scott:
No, it sounds like you’re paying thousands of dollars per month toward these debts within a couple of months of discovering Dave Ramsey. And what I’m wondering here is yes, it sounds like you’ve got some control over this random spending, but that doesn’t sound like it would be $4,000 in random spending in a month. Right?

Ashley:
Well, by the time we had done our debt snowball, we had the 3,500.

Scott:
Oh, I see.

Ashley:
Yeah. So, but by then it was 4,000, and my husband had always taken $1,000 a month and put it in our savings account. So, we started taking that 1,000 too and putting it in, and then with my rental income I would pull out about 1,000 from that, and I can get about 1,000 from my W2 income about a month usually.

Scott:
Awesome. So, all this begins to really play together powerfully for you in terms of your ability to accumulate cash. Now, in conjunction with that, you had mentioned that your husband was buying farm equipment for many years, and that was a significant portion of your debt and financing that. Were you delaying or stopping some of those big capital outlays for items like that during this period as well? Was that on your guys’ mind?

Ashley:
Yeah, that’s a great question. So, we didn’t buy … Any farm equipment we bought, we paid in cash. So, during this debt period when we’re paying it off, we’ll show cashflow to a lot of farm equipment. I bought a new vehicle, and we traded in my old one that was paid off, and we paid, and I think 12,000 extra cash for the new vehicle. And then I think that those were the two things we cashflow. A couple of farm expenses, smaller equipment, nothing big. And then we also did our emergency fund at the same time, and we saved another $20,000 on top of that.

Scott:
Love it. And where would you say like the next evolution of your journey is? Is it right now? Was it, we knew we had $20,000 in emergency debt, and all of your consumer debt that was not high interest or not low interest paid off? What was that point for you?

Ashley:
Well, we finished that last 2.99% interest loan on this past December. So, December, 2019. So, we’ve had like one full month, and actually what we did was we just put it right into my husband’s IRA, the extra money to get that contribution done.

Scott:
Love it. I’m doing my victory fist pump here. So, and since 2017 you paid off $169,000 in consumer debt. You did that by cutting your expenses, reallocating certain capital from savings accounts to high interest debt, just being more mindful of your spending and investment decisions overall, and generating increasing amounts of investment income. And this all gets accelerated by the fact that you’re paying down your debts, which frees up even more cashflow to attack the next step, which is the whole premise of the debt snowball approach. So-

Ashley:
Right.

Scott:
… Oh, go ahead.

Ashley:
I was just going to say like, even with my rental income, it was conscious spending too, because once we actually started to develop cashflow, and it was significant, it was, “Oh my partner has taken withdrawal. He’s going to Vegas for a weekend though. Let’s give him an owner’s draw.” Or, “You know what? I want to buy a new laptop, we have the money, let’s buy.” And you know, [inaudible 00:53:38], bought the new laptop, and different stuff like that. So, even being conscious about where our rental income was going or even things like not bidding out snowplowing or lawn maintenance, like after we started to do that stuff, we started to save money, and make more money that way.

Scott:
Love it. And so, what is your position right now? You have 32 rentals that you either own alone or in partnership, some of which are … It seems like they’re in various states of being totally financed or totally paid off. What is your position-

Ashley:
So-

Scott:
Go on describing.

Ashley:
So, February 1st I handed all 32 of those units over to a property management company. So, I’m no longer property managing, but I have, right now four active partners. One is my first partner, and then the second one, we are 50-50 partners on a duplex, a triplex, and now we’re opening up a liquor store together. So, very different role we’re doing, but it should be fun. And then I have my brother, he’s a 25% owner in one of the properties that’s paid off. For Christmas, we do a little family exchange and I had his name. So, a couple of years ago I gave him LLC documents of an LLC I created and gave him 25% ownership for Christmas. So, he’s clearly silo passive-

Mindy:
I want to get in that Christmas pool?

Ashley:
But yeah.

Scott:
Yeah.

Ashley:
So-

Mindy:
How do I get in that Christmas pool?

Scott:
Yeah, that’s an awesome Christmas pool.

Mindy:
I get socks.

Ashley:
So, I don’t give him any cashflow or anything out of it right now, but hopefully eventually maybe we’ll sell it or something like that. But I just have one more partnership. It’s with my sister. I used her to house hack, I bought a house with her, I gifted her the money for the down payment. She got an FHA loan, and she’s living in the upper part of a duplex. And we are both on the deed for the property, own it, 50-50 but only she is on the mortgage. And then the tenant downstairs pays her mortgage, and then she lives upstairs.

Scott:
I love the way that you’ve set a lot of these things up. Some investors are scared to go partnerships with friends, family, and those types of things. And you have no fear about those things. You obviously are treating these people with respect, and being a solid partner, and an investor with that. And I think it’s just an awesome perspective that we don’t get a lot on this show, at least for those types of things. And it’s worked out wonderfully for you, it seems like.

Ashley:
Yeah, and I think the key to that … And it’s not always a good thing, is that I control everything. And so, for me, I don’t worry because I’m the one collecting the rents. I’m the one paying the bills, I’m the one buying the property. And so, I think that makes it a lot easier for me is that I’ve controlled that.

Mindy:
I think that’s a fair point.

Ashley:
Even my sister’s mortgage that comes out of my account to pay it, not that she would ever not pay it, but I just like that.

Scott:
Interesting.

Ashley:
It’s a mindset thing, I guess.

Mindy:
So, the rent comes to you from the tenant and then into a bank account of some sort, and then that just pays the mortgage? So-

Ashley:
Yeah.

Mindy:
Okay.

Scott:
So, your situation here, you have all these rentals with various partners. You’re still the dairy farmer, I imagine, right?

Ashley:
Yeah.

Scott:
And you have no consumer debt. What do you do with all of this, I’m imagining thousands and thousands of dollars in after tax or just cashflow that’s in your life right now. What’s it feel like, and what do you do with it now? What’s next?

Ashley:
Well, really buff up our retirement accounts. My husband is 40, and, I mean he’s probably only has about 20,000 in retirement accounts. It was never a priority for him. He was never going to retire and he still says that now the farm is his retirement. So, that’s what we’ve been working on right now. We increased my 401k contributions to 20%. We contributing to my IRA, and we’re probably going to set up some other retirement investment for him, like a simple IRA or something like that since he’s self-employed.

Mindy:
Does he have any full time employees other than you?

Ashley:
No, and I’m not either.

Mindy:
Oh, so he could get a solo 401k?

Ashley:
Yeah, that’s what I was thinking of. Yeah.

Mindy:
And if you wanted to use that to invest in real estate, you get a self-directed solo 401k.

Ashley:
Mm-hmm (affirmative).

Mindy:
I’ll give you some information about that.

Ashley:
Okay, yeah, thank you.

Mindy:
I have one of those, and it’s an amazing way to generate a boatload of retirement money, and it’ll help him catch up.

Ashley:
Especially, with the farm too, that out of all of our income, he’s taxed the highest as being self-employed. So, we want to get rid of that taxable income as much as we can. So, we want to try and throw into retirement accounts.

Scott:
No, I, love it. And one of the things to note here is you just got out from underwater with a lot of these consumer debts. Not that you probably have had a positive net worth for a long time because the real estate stuff, but the fact that you’re now consumer debt free, and you’re basically one month out from hitting that milestone, which is awesome. I wonder if we have you back on in a year or two from now, what’s going to happen, because I think you’re going to find that given what you’re describing here, you’re going to be able to fund those retirement accounts pretty quick.

Scott:
And then it’s going to be April and you’re going to be like, “All right, what do I do now with all of this massive surplus that we’ve got?” Which I think is going to be a great problem that I’m excited to see how you do that.

Ashley:
Yeah, I am excited to, I spent a lot of time on my debt free journey, like planning out the years like, “Okay, if we put this much, shrinks that every month. Like, will this much by the time reductory? What do I want to do with it? Where does it go? And stuff. So, it will be exciting. And with me opening the liquor store too with my friend that my money will go there, at least for startup costs, hopefully, that will even bring in another stream of income. So-

Scott:
Love the diversification into small business. All right, so, question here about a recent decision you made, which is to move your properties over to property management. I also did this, so we can both discuss the whys behind this. When I look at your portfolio, you said you had 32 units, and I’m guessing that these units average about $800 a month in rent. Is that ballpark close?

Ashley:
Lower. Like 650 would be the average.

Scott:
All right, so, 650 a month. So, when you say you have that type of unit, that’s about $20,000 a month in rental income. And that’s going to mean that you’re going to be paying a property manager $2,000 a month, which I imagine is a sizable bite of that cash that’s $24,000 a year leaving your profit center because of that decision. How did you-

Ashley:
I’m actually paying five percent.

Scott:
Five percent.

Ashley:
So, there’s a huge reason as to why I decided to do it. I mean, that is a big difference.

Scott:
Absolutely.

Mindy:
Where did you find five percent?

Ashley:
I wanted to stop working as a property manager for the guy that I’m working for. So, I started talking to property management companies and they said, “Well, we’ll do a bulk discount because that was 80 units right there, and three commercial units.” And I said, “Well, what if I throw in my properties?” So that’s five percent because they make their money on the maintenance side of things. So, the more properties they have, the better. So, we got the five percent, yeah.

Mindy:
That’s an important distinction because I have seen a lot of people throwing up their numbers in the BiggerPockets forums, biggerpockets.com/forums if you have a question about real estate, but I see a lot of people throwing them up and there’s like, “Oh, three percent vacancy.” No, you need to account for more than three percent vacancy, five percent for property management. Where are you finding this unicorn property management company? Because it’s 10% like Scott said, it’s a 10% charge now because-

Scott:
It’s a 10% charge plus leasing fees.

Ashley:
Correct.

Mindy:
Thank you.

Scott:
So, it often goes beyond 10%, and it’s true effective cost to the landlord.

Mindy:
Yes. So, this is just another one of those instances where you need to use realistic numbers when you are running all of your numbers, and you were able to find five percent which is awesome. Huge kudos to you for being able to find that. But you put the time in to learn the business. I’m assuming you were interviewing more than just one property management company so you could find somebody who would do a great job because you know what you’re doing.

Ashley:
Yeah. I actually tried to find someone to replace me first and to be the right fit, and then to train someone would have taken too long. So, we just decided to go with a property management company in there. But they usually do charge. They used to charge seven and a half percent but they just raised their fees to 10% for anyone who doesn’t have the bulk discount. But I still, any time I’m renting properties, even yesterday I ran a property, and I’m still using 10% as my number because those fees can increase, you’re not locked into that five percent forever. And if for some reason it doesn’t work out with the property management company, and I switched to another one, I probably will be paying the 10% there.

Scott:
Love it.

Mindy:
That’s [crosstalk 01:03:12].

Scott:
You can’t underwrite the sweetheart deal here, but you should [crosstalk 01:03:15]-

Ashley:
Yeah.

Mindy:
No, that’s fantastic. And if you account for too much expense in your numbers, you just make more money. But if you’re barely scraping by because you fudged all your numbers, and then one thing changes, you could go from a, that’s not a great deal of property to, that’s a really horrible deal. You’re losing money every month property. So, I love that you’re running the numbers at 10%.

Ashley:
And that’s one of the things that we’ll definitely be talking about on the podcast is how to finally tune your numbers. Because that was something I struggled with in the beginning. I think the second property I didn’t account for lawn mowing or snowplowing, I just [crosstalk 01:04:01].

Mindy:
In Buffalo?

Scott:
You got to make [crosstalk 01:04:03].

Mindy:
That’s the most expense in Buffalo, [crosstalk 01:04:04]-

Ashley:
Yeah, so, it ended up the tenants do do it. But being in a duplex, it gets tricky as to the ones to do it. But, it worked out, but still … And even property taxes, so, I’ve been investing for five years, and there’s only been one. Actually the city of Buffalo increased their taxes, and that’s the only time I’ve had a tax increase. But still it’s there, those taxes are escrowed so it made my mortgage payment go up, which, you need to account for these things in advance. You need to not just look at the picture now, but look at the future picture of what this property could be like in five, 10 years, your rents increase, your expenses increase.

Scott:
Absolutely.

Mindy:
Cash flowing $50 on a property is not a good cashflow.

Scott:
Yeah, you buy yourself a pain in the rear and that’s not something that’s going to give you life options.

Mindy:
Yeah, you bought yourself a job, you bought yourself another expense because something’s going to break-

Ashley:
Unless you’re living in that property and you’re living for free.

Scott:
Then you’re cash flowing seven, eight-

Mindy:
There you go.

Scott:
… Whatever the rent is, your cashflow, which is an enormous difference.

Mindy:
Yes.

Scott:
Well, I actually want to make a statement on the property management decision, so I love the way you phrase it. You leveraged your personal network, and profession to find a great deal that’s going to give you increased returns in your business, and free up a lot of time. Love it. Just because I think this will help some of the listeners who are thinking about property management. I will love to share my quick little story on that. I recently transitioned to property management in December of 2019 as well, right around the same time as you are within a couple months here, I guess.

Scott:
And the reason for that is because I had been managing my properties, but I had thought that my time when I started out was worth a certain dollar amount where managing the rental properties was clearly within that band. I think, I would have had to spend $800 a month on property management at 10%, my gross rents are about 8,000. And I thought that I could with a couple of hours a month that would be working out to be 100, 150 bucks an hour or something like that.

Scott:
What I found is that lately, I’ve got the privilege of being the CEO of BiggerPockets, and having my investments perform well over the years, and those types of things that my dollar per hour and time I think is advancing past that position to where it was more economical for me to hire a property manager, free up that time, and use that to other pursuits. Additionally, what I also found was that the fact that I was managing properties and did not like doing that, made it so that I was less willing to buy the next property. So, the two part, that it was a big problem for me where I wasn’t advancing my portfolio, and I think I was performing a labor that was below my dollar per hour rate.

Scott:
And so, that’s just a good, maybe one additional mental model for listeners to think about as they’re going through that decision. It’s very economical at first, and ideally as things get going, and your portfolio begins to scale and grow, then the decision becomes different in the out years.

Ashley:
Yeah. That is 100% accurate. Or if you want to increase your hourly rate, property management is one of the easiest things to outsource, and then you have more time to work on something else to increase that hourly rate too.

Scott:
Absolutely. But it’s also a great experience that I think most landlords should get a year or two under their belt at some point. I’ve learned how to do that because being able to recognize good versus bad in the context of property management, I think is a skill that will serve the landlord for life.

Mindy:
So Scott, here’s a question for you. When you purchased your properties, did you run the numbers with property management?

Scott:
Oh yes.

Mindy:
Oh, really?

Scott:
I always assume property management, and then I pocket the excess by managing myself.

Mindy:
Oh, I was going to make a point about how even the CEO of BiggerPockets makes mistakes too, but apparently the CEO of BiggerPockets is percent.

Scott:
I make plenty of mistakes but I didn’t make that one.

Ashley:
Did you run those numbers on the BiggerPockets calculator too?

Scott:
I did. I always do. So, I often-

Ashley:
[crosstalk 01:08:09].

Mindy:
Which could be found at biggerpockets.com/calculator.

Scott:
Yeah, well, actually by the time this episode comes out, we will have a new overhauled, revamped, bigger and better version of those calculators. They’ll still be able to use the old ones, of course, if that’s what you’re used to. But we think these new ones are going to be a little bit easier, more intuitive. You’re going to be able to make changes in real time and slide and see like, “Hey, I’m doing a flip. And the longer my hold period goes, the more money I lose.” And that there’ll be a slider there to show you how that impacts your financial return.

Scott:
So, I think that’ll be very exciting for people to go and check them out, and we’ll have a … I’m sure that we’ll let everybody know when these things go live more officially than what I’m saying here. But yeah.

Ashley:
Yeah, they’re awesome. I use no rental calculator all the time.

Scott:
Ah, well good, we love plucking BiggerPockets stuff. All right, well is there anything else that we should ask you about or a cover here related to your money story before we move on to the famous four here?

Ashley:
I don’t think so. I think we covered how I use my rental income to help pay down the debt, how it’s great to be debt free, and have that extra income. And I guess the only other thing is that, technically, I’m not completely 100% debt free. I have my mortgage payment. And I have mortgage payments on my rental properties. So, each one has equity in them, which has significantly increased our net income. They’re still not there, but I think it makes me feel better that I’m not actually the one paying it, that my tenants are paying that, so I just have to keep an eye on vacancies, and make sure they’re not all vacant.

Scott:
Love it. I think it’s a very different profile to have debt on cashflow and investment properties, and mortgage debt than it is to have the $169,000 in debt that you paid off over the last few years.

Ashley:
Yeah, and I’ve felt a lot more comfortable too as my portfolio has grown because if one property is vacant, I have the other properties’ cashflow to cover that, so it would have to be a significant amount of vacancies for me to ever have to pull money out of my own pocket to pay a mortgage.

Scott:
Great.

Mindy:
That’s awesome. Okay. If you would like to hear more of Ashley’s story, you can listen to her episode of the BiggerPockets Real Estate podcast at biggerpockets.com/show 348. She was on episode 348 of the Real Estate Investing podcast. You can listen to her every Wednesday, starting a week from Wednesday in this ham-handed segue. You can listen to her every Wednesday on the BiggerPockets Real Estate Rookie podcast with Felipe Mejia as your cohost.

Mindy:
He will be on next week’s episode. So, we can get to know him too, and you can listen to their very first episode this Thursday, March 5th on the Real Estate Rookie podcast. Okay. Ashley, are you ready for the famous four?

Ashley:
I am.

Mindy:
These are the same four questions we ask of all of our guests. What is your favorite finance book?

Ashley:
The Simple Path to Wealth. I’m sure everybody says that, but I actually had one of my friends who’s becoming partners, we’re looking for a deal right now. And he’s leaving for Arizona next week and he texted me today, and was like, “Do you have a personal finance book I can take with me on my trip?” I’m like, “You just need my day. Yeah, I have one. Come get it.”

Scott:
Well, wait a second here. I’m all confused now because we just spent the episode talking about your convoluted partnership by partnership, deal by deal, low price point properties in the northeast, and yet your favorite book is The Simple Path to Wealth, the premise of which is just put all your money in index funds and let it be.

Ashley:
I know, but that’s what [crosstalk 01:12:02] index funds, I guess where anything outside of the real estate is investing but I just loved that book. It was just eye opening for me because really it is that simple.

Scott:
I love it. So, do you invest in index funds now or are you putting more and more money into index funds?

Ashley:
Yeah, all of our retirement accounts are in index funds now.

Scott:
All right. Do you plan to continue putting money into index funds even after you max out your retirement accounts?

Ashley:
Yes. I love to diversify, hence the liquor store.

Scott:
All right. I love it. All right, fair enough.

Mindy:
And The Simple Path to Wealth is written by J. L. Collins who was featured on our podcast episode number 20. You can listen to that one at biggerpockets.com/moneyshow 20.

Scott:
And I’m a huge fan of that book. So, [inaudible 01:12:49] your knowledge, just thought it was funny given the context of your story.

Ashley:
I know it does, yes.

Scott:
All right. What was your biggest money mistake?

Ashley:
It would have to be that we built a house, and mortgage sat, and took out more money to add on different stuff. Like we built a huge patio on the back, but I wish we would’ve stayed in the old house that was paid for a little bit longer because we were living there for free basically. And we should have taken advantage of that longer. I mean, now it’s rented out, but I wish we would have stayed there longer and waited to build our house.

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

Ashley:
Oh, let’s see. My best piece. Can it be real estate tailored to give me a little something different, okay?

Mindy:
Yeah. How about this? What is your best piece of advice for people who are just starting out, who don’t have a rock solid financial foundation but want to get into real estate like you?

Ashley:
Okay, that fits my answer perfectly.

Mindy:
How’s that? Yeah.

Ashley:
Okay. So, mine would be to get a job that has to do with real estate investing so that you’re getting paid for the experience, and you can learn everything you need to learn. So, you can be a property manager, but there are tons of other entry level positions that will get you close enough to real estate to learn the foundation, and you’re getting paid for it. So, like a leasing agent, you could do this as a side hustle, nights and weekends, tons of people want to view apartments. Then you’ll be able to see leasing documents.

Ashley:
You’ll get to see what apartments in your neighborhoods look like, what they’re renting for. You could be a maintenance tech. I met, a police officer the other day that was telling me that he was in college a maintenance tech, and he would get his work slips in the morning. He’d go a couple before his first class, and then he’d have a lunch break, and he’d go and do a couple more, go back to his next class, and then go and do some more. And that’s what he did all throughout college was maintenance requests for a property manager.

Ashley:
You could be a realtor. Then another one is even an insurance agent, you’re not as much on the rental side of things, but you’re helping people value what their home is, how much they want to cover it for. You’re seeing what property values are in the area, and then you’re earning a commission check.

Scott:
Love it. That’s is great advice that I don’t think we’ve heard before, so I appreciate that.

Ashley:
Thank you.

Mindy:
That is excellent advice.

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

Ashley:
Well, I don’t have one. So, I had to ask my a six-year old son and luckily it was a polar bear day when I asked him. So, the joke is, what do polar bears eat for lunch?

Scott:
I don’t know. What?

Ashley:
Ice burgers. Iceberg, ice burgers.

Scott:
Ah, fantastic. If you get a picture with the polar bear, and a certain other type of brown bear, can be a true Kodiak moment with your son there. I’m reaching too hard there. All right. Where can people find out more about you? This is my favorite part of this particular episode.

Ashley:
So, easiest way is on Instagram at Wealth From Rentals, and then I’m also on BiggerPockets.

Scott:
And the BiggerPockets Real Estate Podcast.

Ashley:
[crosstalk 01:16:10]. Yeah. How can I forget that one?

Mindy:
Every Wednesday’s on BiggerPockets, and wherever you find podcasts. Awesome, Ashley, this was fantastic-

Ashley:
[crosstalk 01:16:21] and listen.

Mindy:
Yes, subscribe, and listen, and leave a review on iTunes or wherever you listen to your podcasts. Okay. Awesome. This was fantastic, Ashley. Thank you for taking the time today to share with us your story. I think that real estate can be a super powerful wealth generator. It’s a great source of income generating stream for when you are retired. But it can be really intimidating for people who have never jumped in with both feet.

Mindy:
If you start out when you’re 22 like I did, you know everything, so, it’s a lot easier, but as you get older, you have a little bit more caution in you, and it doesn’t have to be scary if you know what you’re doing. So, it sounds like you learned-

Ashley:
And that’s why you got to come listen to the Real Estate Rookie podcast so that it’s not scary.

Mindy:
Exactly. You learned on the job and now you can share your experiences, your mistakes, so that other people don’t make them too. So, I’m so excited for your new show, and I can’t wait for it to be live, so I can just subscribe to.

Ashley:
Yeah. Thank you guys so much for having me on. I really appreciate it.

Scott:
It was awesome.

Mindy:
Okay, we’ll talk to you soon.

Ashley:
Bye.