Making $8K/Month from 2 Doors and How to Get HUGE Cash Flow with Fewer Units

Ashley:
This is Real Estate Rookie episode 300.

Rachel:
But at one point I had a portfolio of 38 doors.

Ashley:
What made you decide that you were going to do a short-term rental for this one?

Rachel:
It was about getting it to cash flow. I had to change my strategy so many times. Obviously, when I first looked at this property I was like, “This is horrible.” I was like, “I shouldn’t even spend any time looking at. Is there any other way I can cash flow this property?” I went through everything I could think of and I finally figured out a way I can make it cash flow and bring in $8,000 a month.

Ashley:
My name is Ashley Kehr and I’m here with Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today’s a special episode because it’s episode 300 which is insane, right? 300 episodes. Man, I feel like time has flown.

Ashley:
Yeah, it really has.

Tony:
300? Wow. We want to bring someone kind of cool and special for today’s episode, so we thought it might be cool to bring someone who isn’t necessarily a rookie but is kind of a rookie because they’re starting over.

Ashley:
They started over.

Tony:
They started over. So, we brought Rachel Richards, some of you may know her as moneyhoneyrachel on Instagram. She’s a bestselling author. She’s got two really successful books on Amazon and all these other places. But she’s got an interesting story because after building her portfolio up to 30-some odd units, she got a divorce, had to liquidate pretty much everything she had, and she’s in the process now of rebuilding her real estate business, and we brought her on today to kind of talk about that journey.

Ashley:
She starts out with a house hack and talking about how she’s had to change her strategy going through almost a $200,000 remodel. So just great advice and just interesting to hear her mindset of having to start all over again too. Before we bring Rachel on, as you guys can see if you’re watching this on YouTube, Tony and I are live in person in Denver here where Rachel is based out of. She is a nomad, so not here all the time, but we thought it’d be fun to do a couple live interviews here. Rachel, welcome to the show. Thank you so much for joining us today. Can you tell everyone a little bit about yourself and how you got started in real estate?

Rachel:
Absolutely. Thank you for having me. It’s good to see you both.

Tony:
Yeah.

Rachel:
I have been a real estate investor for a long time, so I’m not a rookie real estate investor. The deal we’re going to talk about today is very rookie for me, but at one point I had a portfolio of 38 doors, and I scaled my portfolio from zero to 38 doors in under three years, and I was able to quit my job and retire, which I say in air quotes which we can talk about, by the age of 27. I was making $20,000 a month in passive income by then. I’m also a former financial advisor and a two times bestselling author. That is me in a nutshell. It sounds very impressive, but I don’t know what I was doing at the time-

Tony:
I was just thinking how nonchalant and super impressive resume.

Ashley:
I know. It’s quite the [inaudible 00:02:53].

Rachel:
I swear I don’t know what I’m doing. I have no idea. I can’t cook.

Tony:
So just real quick for the listeners, you were episode 454 on the Real Estate podcast. You also had two episodes on the Money Show, 317 and 364. If folks want to get really deep into Rachel’s backstory, go check her out on the Real Estate or the Money Podcast.

Ashley:
I just want to say very impressive eyesight, Tony, that you can read.

Tony:
I did have to blow it up. It’s like at 150 right now for me to see my laptop.

Ashley:
Yeah.

Tony:
But, Rachel, so you have this alter ego. I don’t know if alter ego is a good name, but you have a nickname, or I don’t know, your handle, moneyhoneyrachel. So you’ve got books under that title, that’s you on Instagram. I’m just curious, how’d you come up with moneyhoneyrachel?

Rachel:
Yeah, good question, Tony. I published my first book in 2017 and it’s called Money Honey, and the name just stuck whether I liked it or not. I like it. I think it’s cute and catchy. That’s what I’m known as now and people call me that and that’s what it’s become. And so I have this platform on Instagram and TikTok and Facebook and that is my business name.

Tony:
Love it.

Ashley:
Let’s just talk a little bit about your beginning, the start, the first 38 doors. You said what you’re doing now is you feel rookie at that. The 38 doors, were they long-term rentals, short-term rentals? Kind of give us a glimpse of what kind of investing you did and then what happened.

Rachel:
Yeah, for sure. What I did to build up those 38 doors, it was a mutual effort between me and my ex-husband. In the past year, I got a divorce and I talk a lot about that on my money episode, which was 364. So if anyone wants to see me cry, that was really a good episode. I really shared a lot and I think that was a great episode. But I did that with my ex, and we were partners financially, we both contributed 50/50 and in terms of making an effort to build up that portfolio. A couple of them were single family houses, we had a duplex, but most of that portfolio was boarding houses. We had three buildings that were 11 to 12 units per building, and it was a rent by the room model. We had 11 to 12 tenants in each building where they were renting out individual bedrooms. We furnished the whole building, we paid for all the utilities, but that was the majority of our portfolio, and I talk a lot about that in the Real Estate Podcast.

Ashley:
These boarding houses, have we ever talked about boarding houses at all?

Tony:
Mm-mm. We’ve had people rent by the room, but not at that scale.

Ashley:
Yeah. Are these almost you’re buying it as a boarding house or were you taking properties and kind of transforming them into this model?

Rachel:
We found them on the MLS listed that way, and I saw the cash flow and I was like, “That must be a mistake, a typo.” But we saw them, and we learned about what they were, and we bought them that way, and we learned from the sellers how they were operating them, and we just did the same thing. They served us really well. It was a lot of work, not one of the most passive ways to own and operate real estate, and we did end up selling them in 2021 before our divorce, not divorce related, for a lot of reasons, but we wanted to become more passive real estate investors. My portfolio has changed a lot over the years.

Tony:
Yeah.

Ashley:
Were you self-managing these or did you have a property management company?

Rachel:
We went back and forth. We tried both things. It was a lot. When we got to 27 doors, we hired property managers, and some were good and some were awful and stole a lot of money from us which I share that story on the Real Estate show as well.

Tony:
Wow. We might have to bring you back just like talk about the boarding house model because I think it is a really creative way to maximize cash flow without necessarily having a bunch of doors, but obviously there’s some pitfalls that we might want to talk about so our rookie audiences don’t make the same mistakes.

Ashley:
Yeah.

Rachel:
Absolutely.

Tony:
Cool. You go through this whole journey, Rachel, of building up this big portfolio, and then through the divorce you have to liquidate. All of it or do you have any of it left or are you starting from scratch? Just kind of give us the post-divorce.

Rachel:
Yeah. Through the divorce last year, we agreed to sell a couple of our houses and he walked away with one single family sober living model in Denver, and we both moved from Kentucky to Denver a few years ago, and then I walked away with one duplex in Louisville, Kentucky, and we kind of sold the rest of what we had. It was funny because my whole story was here’s how to go from zero to 38 doors in under three years, and then it was like here’s how to go from 38 doors to two doors in under three years. Follow me for more real estate [inaudible 00:07:33]. Then I felt like, “Oh my gosh, I feel like all my credibility has gone out the window because now I only have two doors,” but of course that’s not the case because I achieved what I achieved and that’s not going away.

Ashley:
And those are deals done.

Rachel:
Yeah.

Ashley:
As your portfolio changes, you still did those deals. It doesn’t matter what your unit count is.

Rachel:
Yeah, exactly. I had two doors for a while, just that duplex, and I was a nomad for a long time. Once the divorce happened last year, I bought a one-way ticket to Italy and I had my Eat, Pray Love moment. It was like, “Bye.” I traveled all last year, but eventually I wanted to have a place in Denver because this is my home and where I want to have a home base. That’s when I started thinking about how can I buy a property where I can come in and out of but still can be a good investment property for me and bring me some cash flow. That’s when I started thinking about doing my first house hack, and it’s so ironic that I’ve done so many properties and I’ve never done a house hack before, but that’s where I started thinking about buying a multifamily property in Denver that I could live in one unit and rent out the others because it is so expensive to live here now. Properties are expensive, rent is expensive, and that’s when I started looking for this property that I now have and have renovated.

Tony:
I want to get into the property, just before we do, Rachel, just, you kind of had to reset, right? Different people for different reasons might have to reset also where maybe they get started and someone stops them, they have to start all over. At any point, did you feel like it wasn’t worth starting over on the real estate investing side, or did you have that discussion with yourself, like, “Is it even worth my time and energy trying to build this portfolio back up again?”

Rachel:
100%. The divorce was really discouraging because there was a lot of legal battle and it unfortunately was not amicable, and I share a lot about that in the Money episode, not to keep referring to other episodes, but we could talk all day. It was very discouraging because I felt I lost a lot. I was angry just for the fact that I was like, “I’ve already done all this and now I feel like I have to start all over again and build it back up.” The first time I did it, I had a partner, and there’s a lot of comfort in having someone alongside you to do this.

Tony:
Totally.

Rachel:
We have a miller moth attacking us. There’s a lot of comfort in that, and I think it takes away some fear because you’re not doing it yourself.

Ashley:
Yeah, that’s security.

Rachel:
Yes, exactly. It’s on you and another person now. If you mess up, at least you’re messing up together. And now when I was looking at doing all of this again, I was like, “Oh my gosh.” It just made me feel exhausted even from the beginning. But I knew I at least wanted a place for myself, and it was scary because now this was going to be the first property I ever bought by myself with my own money without having a partner by my side, and I felt very alone in that, but it didn’t stop me. I had more fear, but I also had some confidence because I had bought so many rental properties before.

Tony:
Was the motivation really just to… Yeah, I guess talk through the motivation. Was it that you wanted to build it back up to where it was before or just to kind of have this one thing for yourself? What was the driving force for you?

Rachel:
I think there was two, and if you’d asked me six months ago, I had a different goal back then. I was like, “Well, I at least want to build back up to having 10 doors.” But I think that was driven by this feeling that I needed to have this credibility, and I think it came from sort of a lack of self-esteem and a lack of self-confidence just from this platform I built and this business I built.

Ashley:
It was for other people.

Rachel:
Yes, it was like I felt other people had this expectation of me. It was like, I need 10 doors. I don’t know where that number came from. It was partially that, and then it was partially I did want to have a house in Denver, a place for myself, and house hacking a multifamily made the most sense to me logically. That is where it came from. Now that I have purchased this house hack that we’re about to talk about, I’m like, “I don’t need to have 10 doors. That’s silly. Why do something…” Because now I’m recognizing it was about other people and not about me, and I’ve spent a lot of time building back up my self-confidence after what happened last year. I feel very credible. I feel like I’ve done what I’ve done, and if people look at me and they think that six doors isn’t enough, then they’re not my people and that’s okay.

Tony:
I love that. And just in general, I think people get so caught up in unit count. It’s like a vanity metric. You could maybe a hundred doors, but maybe what if you’re not even profitable on those hundred, you know?

Rachel:
Exactly. Exactly. It’s easy, not easy, maybe that’s not the right word, but it’s easy to buy 20 doors in a year, but you could buy 20 really bad doors and be losing money, and that’s not what I’ve ever wanted to do.

Ashley:
And somebody else could have bought three doors and cash flowing the same amount as you.

Rachel:
Exactly.

Ashley:
Or, someone could be, “I’m cash flowing $5,000,” but they also put a 50% down payment on the property too, you know?

Rachel:
Yeah.

Ashley:
How you’re leveraging the property plays a big role into it.

Rachel:
Yeah, and I think I used to be that driven from a lack of self-esteem. I would go to meetups, we go to meetups and people are like, “Well, how many doors do you own?” And it’s like, well, it doesn’t matter. I want to know who you are as a person. I used to lead with that too, like, “I’m so-and-so,” but it came from a lack of self-confidence, and now it doesn’t matter to me. I want to know who you are as a person.

Tony:
Yeah.

Ashley:
Do you even know what your exact door count is right now?

Tony:
No.

Ashley:
Yeah, and I don’t either because it changes, but it’s not something I need to remember. It might be, yeah.

Tony:
Yeah, we’re like 20 and some change. We’re like over 30 if you include all our rehabs and stuff, but I think we have 26 active Airbnbs right now.

Rachel:
Well, and when limited partners who invest in syndications say, “I own 1,064 doors,” it’s really misleading

Tony:
Yeah, I think that’s one of the most misleading. Yeah.

Ashley:
Yeah, because I could say that, and technically I own 1,500 doors or something, but that’s because I’m a limited partner in 10 syndications, so that doesn’t count.

Ashley:
Yeah, and that’s also your percentage in the ownership. Some of my properties, I only own 50%, and then it’s not even the whole thing.

Tony:
Yeah. But I think it’s an important point for our rookies to understand because so often it can be discouraging if you’re trying to, I don’t know, live up to other people’s expectations or you’re looking at someone else like, “Oh, this person has so many more doors than I do. Am I doing it the wrong way?” I even struggle with that. It’s like, we know Brandon and we know AJ, we know Taro, we know all of these people, James, that have these massive businesses, and you kind of discourage yourself because like, “Man, I’m not where they are,” but you have to realize you’re running your own race, you guys have your own goals, your own objectives, and it’s easier to, I think, enjoy the journey if you’re focused on yourself more than everyone else.

Rachel:
Yeah, totally.

Tony:
Yeah. Cool. Let’s talk about the house hack.

Ashley:
Yeah. How did you find the deal?

Rachel:
I found the deal, so I worked with Craig Curelop. He was my realtor. He’s a very close friend of mine and the author of the BiggerPockets book, The House Hacking Strategies. Shout out to Craig, he was amazing. But I found it because I wasn’t really ready to start looking for properties, and what I teach my students is how to find off-market deals because I think it’s really hard to find a good deal on the MLS. It’s not impossible, it’s just harder. I think that when you get creative and you look for off-market strategies, that’s when you can find really good deals, especially in the last couple years when the market has been so competitive and so saturated. That’s one of the things I specialize in.
But in December, six months ago when I started looking, I just wasn’t really ready to be serious about looking. I was like, “Well, Craig, throw me on the MLS, throw me on the search, and I’ll just get familiar with what kind of deals are happening in Denver.” He did, and I found this duplex I really liked in the city that I wanted to live in, and it was kind of the perfect setup, but I didn’t take it very seriously. But then it went off market, so the listing expired or something or got canceled, and then I was like, “Oh my gosh. So now it’s off market. It’s not active on the MLS anymore. Maybe I should make an offer now and try to negotiate with the sellers.”

Tony:
Let me just pause right there, Rachel. Were you just looking at it daily? How did you know that it expired? What did you look at to identify that?

Rachel:
I think so. Craig or I noticed that it was there one day and then it wasn’t because we had already flagged it.

Ashley:
Was it like pending or sold or anything?

Rachel:
We had already looked at 20, just taking note of it and flagged a few that we were interested in, and then we were like, “Wait, where did that one go?” and then we realized it had gone off market. It was over Christmas break or something like that, and at this point I was not in Denver, I was in Kentucky, and so he helped have an agent go out and do a virtual showing for me so I could sort of see the property on FaceTime. It was the perfect setup for what I wanted it to be, and we can talk about that, but it was a side-by-side duplex in the city that I wanted to live in. We started thinking about how to make an offer, and then I was in Columbia, so then I’m 3,000 miles away in a completely different country, and then that’s when we made the offer on the property.

Ashley:
Real quick, what made you feel confident and like, “Okay, now is the time, I’m ready to go ahead and purchase a property”?

Rachel:
So this property is interesting because it’s the worst investment property I’ve ever bought, and I bought it on purpose because it wasn’t about having this amazing cash on cash ROI property. It wasn’t about bringing in the most money I could bring in. For me, the main purpose of this property was having a place for me to live and for me to call my own home that no one could claim and no one could take away from me and that I could have, I could come back to in Denver. At the same time, I was like, “If this could cash flow and offset my living expenses in Denver, that would be amazing.”

Ashley:
Right. You’re still better off than somebody who probably went and just bought a single family home.

Rachel:
Exactly. That was my goal. If I wanted to keep investing in real estate and had this crazy cash on cash ROI, I would keep buying properties in Kentucky where I was getting 20, 25% cash on cash ROI, but I needed a place to house hack in Denver. So that’s just to give you the overview of how I was thinking about this, that’s what I wanted, and I wanted to be in a specific location in a specific city here. It was the right location, it was the right setup for me to house hack a multifamily, it was just exactly what I wanted, and I wasn’t going to let this deal pass me by. Now, at the same time, if I couldn’t get this at the right purchase price, I was fully ready to move on. I wasn’t going to be emotionally invested in this property. I had all year. This was even earlier than what I was looking. I was like, “If this doesn’t work out, no big deal, but let’s at least try.”

Tony:
Two things I want to circle back on that you said, Rachel, one was something you just said about getting emotionally invested, and I also want to talk about the expired listings. But for the emotional investment, I feel like that’s something that a lot of new investors, and sometimes seasoned investors, they get caught up on is they’ve spent so much time looking at the photos on Zillow, they’ve maybe toured it already, they’ve ran the numbers, and they’re just now emotionally attached to this property. Instead of letting the data and the numbers dictate what purchase price makes sense, now it’s all of these feelings that they have about the property. So I love that you said, “I’ve got time. I’m not in a rush. I’m not going to get emotionally attached,” and you’re going to let the numbers dictate what makes the most sense for you.

Rachel:
For sure. This is the exact approach I take to dating right now, that I’m not going to get attached. There’s plenty of fish in the sea. You have an abundance mindset with it.

Tony:
Totally.

Rachel:
If it doesn’t work with this one, move on to the next.

Tony:
Yeah, I love that.

Rachel:
Yeah.

Tony:
I also want to talk about the expired listing piece because Pace was on and he talked about that being one of his strategies as well, where he said he’ll keep a list of all the properties that he likes and he’ll just track them like whatever, week over week, and he’s just waiting for them to go expired. That way he can reach out to them and pitch them on creative financing terms. I think it’s something we don’t talk about enough on the podcast is that not everything that gets listed ends up getting sold, and for one reason or another, maybe it’s price, maybe it’s personal situation, whatever, sellers sometimes pull those listings, and those are sometimes the most, I think, motivated sellers. Do you know why it came off the market? Was it a price issue? What was the issue with the listing?

Rachel:
I believe that the sellers were not getting the offers that they wanted, and it was the end of the… It was winter, so everything’s always slower in winter, so they took it off the market and they figured, “Let’s just take it off for a month or so and we’ll relist it in the new year,” and maybe they’ll get better offers then.

Tony:
Okay. Let’s talk a little bit about the confidence piece, right? Because you built up all of this experience scaling your original portfolio, and now you’re kind of starting over. You weren’t a rookie, I think, by most definitions, but you were a rookie in this specific situation. Just as you’re thinking about this house hack, what were some of the areas where you said, “Okay, I know this piece, I know how to do this,” and then what were some of the areas where you’re like, “Hm, I don’t really know what’s going on on this side”?

Rachel:
Yeah, I’m glad you asked, Tony, because there were definitely areas that I was so confident in, and then there were areas that I was like, “I have no clue what’s going on right now. I don’t know what I’m doing at all.” I was definitely a complete rookie. I was confident in finding the deal and having my buy box, knowing what I was looking for. Analyzing the numbers, I am really confident in running the numbers, projecting the numbers. Also long distance investing, because I had bought so many properties before, I was confident in being in Columbia 3,000 miles away and making an offer and coming up with renovation estimates. I wasn’t confident in knowing how to come up with renovation estimates, but just doing it from far away, so we can talk about that, and having a network of people to verify my numbers, to do things for me when I was gone, to delegate, that was something I was confident in.
Then in terms of things I had no idea what I was doing, the location. Denver is completely different than Louisville, Kentucky. The price was crazy for me. I mean, I remember thinking, “What am I thinking buying an $800,000 duplex? I could buy four properties in Kentucky for that amount of money.” That was really scary for me. The zoning and the permitting around Airbnbs and STRs, that was all new, and I think I made 500 mistakes trying to learn and figure that out, and people will point stuff out to me and I’d be like, “Oh my god, I didn’t know that,” and it would change things as I was going through the process.
This was my first purchase completely by myself with my own money and not partnering up with anybody in any way, my first Airbnb, my first house hack, it was hard to cash flow this property so I had to get creative, and then the last thing is the scale of this renovation. I had done renovations before on my Kentucky properties, but it was in the 20 to $40,000 range. This renovation was $200,000 and it was massive, and that was really scary for me as well. That’s kind of the broad overview of all the different areas that I was good at and not so good at.

Ashley:
With doing long-term rentals for so long for your first portfolio, what made you decide that you were going to do a short-term rental for this on?

Rachel:
It was about getting it to cash flow. When I looked at this property, it was a side-by-side duplex and it had a full unfinished basement. I know we talk a lot about the 1% rule. The 1% rule is that a property that is listed for $500,000, ideally we want it to rent for $5,000 a month, and it could be above that or below that, but that’s kind of the guideline we aim for to make sure it’s going to be a good investment. Now, this property was first listed for 865,000 by the sellers, and it was just an 800 square foot per unit duplex, two beds, one bath on each side. I don’t know for sure what they had previously rented it for, but I think I remember them saying like $1,500 per side.

Tony:
Wow.

Rachel:
So over $800,000 property, renting for $3,000 per month when it should have been renting for over $8,000 per month. Obviously, when I first looked at this property, I was like, “This is horrible.” I was like, “I shouldn’t even spend any time looking at this,” but I have learned as a real estate investor to be more solutions oriented. It’s not this isn’t going to work, it’s how could I make this work. Where a lot of investors might just write this off and say pass and look at the next deal, I did see some potential. I was like, “Well, let me take 10 minutes just looking to see if this is worth looking into any further.” And because this duplex had a full unfinished basement on both sides, each with a walkout, it walked out outside to an exterior, so there was exterior exits to both of these unfinished basements, I thought I could finish out this duplex and turn it into a quadplex, and now I’ve doubled the ability to rent it out, and what if I furnish it and I do medium term or short-term rents. Can I increase the cash flow enough?
I looked at it every way possible. I said, “Could I do four long-term tenants? What does that look like? Could I do medium-term rents? Could I do short-term rents? Could I do rent by the room? Is there any other way I can cash flow this property?” I went through everything I could think of, and I finally figured out a way I could make it cash flow and bring in $8,000 a month. That is the way I got it to cash flow. At the end of the day, after all the… I think I initially offered 740,000. I went pretty underneath their initial asking price. But at the end of the day, after all the negotiations, I got it for 780,000 with a $30,000 seller’s concession.

Tony:
Wow.

Rachel:
So basically $750,000.

Tony:
One thing I want to point out, James Danner talked about this when he was on the podcast talking about estimating rehab costs, but he’s always trying to identify the best business plan for every property. When he looks at a new project, he’s like, “Okay, do we need to add square footage? Can we just do it as is? What do I need to do to this property to help me get to my numbers?” That’s pretty much what you just said right now where you said solutions oriented, and I think so often when rookies are looking at a deal, they’re just looking at it at face value, and they’re not really understanding what are the opportunities that we might be overlooking and how can we get it to the number that we need. were you bouncing ideas off of anyone, Rachel, to kind of come to that conclusion, or was it just your experience in real estate investing that helped you come up with this new business plan? How’d you land on that?

Rachel:
A little bit of each. I talked with Craig a lot as I was going through the process. I think just the questions of how could I make this work, what could I do to make this cash flow help you become solutions oriented, like how could I, what can I do, that help you take ownership of the situation and find solutions rather than just saying, “That’s too far off. There’s no way that’s going to happen.” I think those questions are really great. I’m also really conservative. There’s a difference between forcing something to happen that’s just not going to happen versus being creative and still being conservative. Even when I was estimating the rents on this, looking at the medium-term rents and the short-term rents, I was estimating each unit would take in $2,000 a month when I wasn’t living there. The way I look at an analysis on a house hack is when I’m not living there, how much is it going to take in.
I was estimating $2,000 a month in rent and that was conservative because my realtor, other investor friends who I had look at my numbers, second set of eyes, they were like, “You’re going to get more than that. I think you’re going to get nine or $10,000.” I’m very conservative in my numbers because my goal is that in real life my property’s going to do better than what I project, and I think that’s going to be what’s happens. I projected 8,000 in rent revenue.
Now, where I’m at in the process of this property, is the renovations done, I’m still working on furnishing a couple of the units, but I actually did end up renting one unit. Just two days ago, I signed a lease. I did one unit long-term rent so it’s unfurnished, and I rented it for 2,250 with another a hundred dollars in rental fees or whatever.

Tony:
I love that.

Rachel:
An unfurnished long-term tenant is going to be paying me more than what I projected for the furnished units so I think I will be closer to that nine or $10,000 a month, so I’m really excited about that.

Tony:
That’s amazing.

Ashley:
That’s awesome.

Rachel:
Thank you. Yay.

Ashley:
One thing I want to ask both of your opinions on is so you’re doing multiple strategies in this property. What is your take on rookie investors focusing on one strategy or getting a property like this where they’re incorporating multiple strategies which might kind of give them more stability in a way because it’s different income streams coming in instead of just relying on all long-term rentals or all short-term rentals? I’d love to hear your take on that too.

Rachel:
Yeah. I think we’re going to talk about Tyler and Zosia, my contractors, but they did a presentation recently for my mastermind students, and they said that they run all of their numbers using long-term rents because that’s going to be the lowest rent you’ll get, and typically you’ll get higher rents for medium term and short-term rents, but they do that to be really conservative in their numbers, and it gives them flexibility to change their strategy later if they do want to bring more rent in. I think that’s a wise way to run your numbers.
I had to change my strategy so many times because, I don’t even remember, I think the initial thing I wanted to do was do two short-term rentals in this unit and one medium-term rental, and then I found out after I closed on the property that I couldn’t do two short-term rentals because I had done my homework, I did all the research and everything but I misunderstood something and I couldn’t do two short-term rentals in one property because of the regulations in the city that I lived in. I’m a smart person, okay, but I messed up.

Tony:
Can I just comment on that really quickly that?

Rachel:
Yeah.

Tony:
It’s very difficult sometimes to really understand the language inside some of these ordinances, and even if you call, you might get two different answers from people that work at this county. Usually what we like to do is we’ll call and we’ll try and talk on the phone to someone and say, “Here’s what I’m trying to do. Give me a thumbs up or a thumbs down if this is possible,” and then we’ll follow up with an email afterwards so there’s like a paper trail.

Rachel:
Have it in writing.

Tony:
That way if someone comes back to us later and says, “You guys can’t do this,” we can say, “Well, no, Tony at the front desk, here’s an email confirming this is what happened.” We got into a big fight with one of the counties last year because the… So the way that it works is the lawmakers in the county or the city are the ones that pass the ordinance. They’re the ones that create the laws to pass the ordinances. Then they get passed down to the people at the front desk that have to enforce those ordinances. Sometimes the interpretation of the people enforcing the ordinance doesn’t align with the interpretation of person that created it. We got one of our short-term rentals shut down because the person enforcing it, the front desk, didn’t agree with our interpretation of the ordinance. We literally had to escalate it all the way up to the county supervisors who were basically the people that created the law, and they finally reversed our permit revocation.

Rachel:
Oh my gosh.

Tony:
My point is, is that sometimes it is hard to really understand the permits, but the more you can talk to people at the county and get it firsthand, the easier it is to kind of follow along.

Rachel:
That’s great advice. I should have called them, and I agree, always call and just verify it firsthand. I think the lesson I learned is just to be flexible, because luckily when that happened, the unit I planned on being another short-term rental, I was just like, “Well, I’ll medium-term rent this.” My initial game plan is not what’s now happening because now I’m going to have one long term, one medium term, and one short term which is fine. I’m learning all these strategies. I don’t know what the heck I’m doing at all. It’s overwhelming, not getting any sleep, but it’s fine. But yeah, I’m learning a ton and I’m going to be, soon hopefully, an expert on all these different strategies.

Tony:
Yeah. But to answer your question too, Ash, I do think that there’s a ton of value when you’re first starting out to say, “I want to get really good at this one thing.” I think what you see a lot of new investors do is that they’re somewhat overwhelmed by all the different investing options that either, A, they never get started because they can’t decide, do I want to flip, do I want to wholesale, do I want a medium term, short term, long term, or B, they never get really good at any one thing because they’ve tried so many different strategies. What’s the saying? It’s like as wide as an ocean but deep as a puddle, right? They have all this surface level information but they don’t have this really strong understanding. I’d say for most people, maybe if you want to dabble to understand which strategy do I like the most, but once you try them, I would say there’s a lot of value in going deep into one of them.

Ashley:
And I think too, if you’re going to do the house hack model where you’re living in it, and okay, that’s a great way to dabble in these strategies, and then it’s like, okay, as you continue buying, I loved the short-term rental model, I’m going to continue to do this instead of continuing buying different, four, six units, doing all different strategies for all of them.

Tony:
Right, doing different things inside. But just one thing I want to add too, because I think that your strategy, Rachel, and what Tyler and Zosia said to you of, hey, I’m always going to underwrite this as a long-term rental, it makes sense in a metro market, right? If you’re in Denver or a suburban market, it makes sense to do it there. But for me, in the markets that I invest in, none of my properties would make sense as a long-term rental. They just wouldn’t. We would get a fraction, we probably wouldn’t even cover the mortgage in some markets if we tried to long-term rent those properties, but we took that risk because we know that to operate in true vacation destination, that’s what it is. I think your risk tolerance is, you got to kind of have a little bit of that depending on what market you’re going into, but if you are in a suburban or an urban setting, I do think having that long-term rental as your kind of plan B is a smart thing to do.

Ashley:
Yeah. Before we get into the actual final numbers of this, I guess, with your management of it, talk about how you are managing all three of these different strategies. Tyler and Zosia also helped me set up my medium-term rental, and it was surprisingly a lot different than I thought it would be. It was a mix of long-term and short-term rental of here’s the things to implement. Are you managing all three on your own, have you hired any property managers, maybe a glimpse into what kinds of different softwares are you using?

Rachel:
Yeah. Tyler and Zosia Madden are real estate investors in Denver and they’re general contractors and they do a lot, and they’re very loved and respected and well known in the community of Denver. The story with them is I knew Tyler and Zosia before at some networking events and I was friends with Zosia, and I came back to Denver for a month in February mainly to just do the closing on the property, although I didn’t even need to be here for that, but I needed a place to stay in February, and they had just finished one of their medium-term fourplexes that they were renovating, furnishing, and renting out, and I needed a place to stay for a month, and one of their units was available. I was like, “Can I rent that from you?”
So they were my landlords, and then I was interviewing contractors and I interviewed them and I decided to hire them to be my contractors on my property. And then I was like, “Okay, we’re doing a lot of business together, so I really hope we’re friends at the end of all of this.” Luckily, we still are. To this day, we’re friends because we’re past the renovations months later. We just hung out the other day. Thank God for that. Everything went well. But they did a fantastic job on my renovation. What was the original question? I went off track

Ashley:
As far as how you’re managing the three different strategies, as to how they’re set up differently, or maybe you have it all set up the same, the same software.

Rachel:
Yeah, and I think this is kind of one of my mistakes because Zosia has a really good eye for interior design, just on the design aspect of it. I don’t. Okay, this is not one of my strengths. I cannot envision a room and make it pretty. I can recognize when a room is pretty. I can’t create it though. Zosia’s really good at this. Even during the renovation process, the contracting team would be like, “Do you want this finish or this finish?” and I would be like, “Zosia, what do you think?” She just ended up making all the decisions for me, and it looks beautiful. I should have definitely hired Zosia or hired an interior designer to help me with my short and medium-term rentals because I’ve spent hours FaceTiming my mom who’s good at this, and asking Alex Hughes on the BiggerPockets team because she’s good at it, and Zosia’s helped me a little bit. It’s just been an absolute nightmare.
I think one thing is to know your strengths and know your weaknesses. Delegate your weaknesses to somebody who’s good at it because I have probably cost myself more in time by taking too long to figure this out for myself, and that’s a big mistake. But yeah, learning all this stuff, I haven’t launched my Airbnb yet and I don’t even know what I don’t know and what I’m about to get into in terms of the pricing and the listing and managing the tenants and the lock codes and giving them the directions and all that stuff. I’m about to learn that. So I’m going to definitely hire somebody or have my investor friends who are good at this help me with something and then I’ll help them with something. The medium term thing, I’m on Furnished Finder. I’m just making it up as I go. You’re asking me questions. I am a rookie, truly. I’m making it up as I go and figuring it out, and I think it’s all going to come together.

Ashley:
That was me with medium-term rentals. I literally threw it up on Furnished Finder, and within five days someone’s like, “Okay, I want to rent it, here’s my information, I’m good to go,” and I was like, “I don’t know what to do now.”

Tony:
What do I do? What happens now?

Ashley:
That’s why I called Tyler and Zosia. It’s like, “Yeah, I need to help. What do I do?”

Rachel:
I call people 500 times a day. I mean, I went ahead and listed it on Furnished Finder, and it hadn’t even been furnished yet, but I was like, “Let’s at least get it listed and I’ll just say, ‘Hey, the furniture’s not there, so here’s how it looks empty.'” But this is where, you guys, it’s so important to have a network, as you know, and if you don’t feel like you have a network, then join your local real estate investor association or your Facebook groups or go to meetups because it is so important in moments like this to have people you can call and be like, “Hey, what did you do for this?” Or, “This person wants to rent from me. What’s the next step? Should I send them this background check and credit check?” “Yes.” “What’s the next step? What do I do now?” It’s just really nice to have three or four or five people who know a little bit more than you do that you can call and rely on.

Ashley:
Yeah.

Tony:
Yeah. I just want to tie that back into what we talked about earlier about you having this experience but you feeling like a rookie coming into this. Ash, you said the same thing. You know BRRRR-ing and long-term rentals in Buffalo like the back of your hand, but when you wanted to do your first big renovation, you partnered with someone in a completely different state that really knew that market. When you wanted to get into this new asset class or take on a bigger renovation, you partnered with people who kind of knew that path to go.
For our rookies that are listening, I’m just echoing what you said, your ability to tap into your network is one of the, I don’t know, one of most valuable things you can do. Luckily for everyone listening, the rookie community is so incredibly strong. Ash and I always joke, we almost never have to post in the Real Estate Rookie Facebook group because every time someone posts, there’s like a thousand good responses that are just amazing. So for our rookies that are listening, if you’re looking for that community, if you feel like you’re by yourself, you’re on this island, just get connected, get active. Just post an introductory post, “Hey, my name’s Tony, here’s what I’m trying to do, here’s what I’m stuck with,” and I guarantee people will reach out and give you some support.

Ashley:
Or you could end up on Rookie Reply on our [inaudible 00:40:00] episodes.

Tony:
Yeah, or you could end up on a Rookie Reply. By the way, head to biggerpockets.com/reply and get your questions in so we can get them answered.

Ashley:
Okay. Do you want to share kind of your projection for the final numbers? Also, I’m curious on to how you financed this property and what your expenses are for the property.

Rachel:
Yeah, we can get into the numbers for sure. Again, bought it for 780k with a $30,000 seller’s concession. Since I house hacked it, I was able to put 15% down, and I was really fortunate because I had already amassed a really big real estate portfolio, I had a lot of financial success with my business, and I’ve shared very publicly my income and my net worth on my Instagram. At this point, I have built myself to be a millionaire and I have a net worth of over a million, and that’s even post-divorce, by myself, hit that number, yay. That was exciting.

Ashley:
That’s awesome.

Rachel:
Thank you. So I was fortunate to have a lot of money in savings, and I had had this cash sitting there that I wanted to invest in real estate, and I hated having this money just in a savings account during all these recent years where inflation was so high, so I was so eager to get this invested, but I did have the money there in savings where I was able to put the money into a down payment and to cover my own renovation. That was nice. Now, had I not done that, I would’ve looked into seller financing, finding a silent partner, hard money, a lender, private money. There’s all these really creative ways you can get financing and you can partner up with people if you don’t have the money yourself. I realize I was in a fortunate position to do that, and for my next property, since everything’s depleted now, if I want to buy more property, those are the kinds of things that I’ll do. But for this, I was lucky to have that.

Tony:
Let me ask you, you said 15% down. Did you explore a 3.5% FHA type loan? What made you go with the 15% down?

Rachel:
You have to have at least 15% down to have a Fannie Mae loan on a multifamily property.

Tony:
Gotcha.

Rachel:
Yeah, because I was thinking I didn’t have to put that much down, but then the more I looked into it, the more I realized you have to have at least 15% down, unless there’s something else I’m missing. But that was another thing that I was like, “Oh, I’m going to have to put more down on this property than I thought.”

Tony:
Yeah. Have you heard of NACA?

Rachel:
No.

Tony:
Neighborhood Assistance Corporation of America. Nancy Rodriguez, she was a guest, she used NACA, and one of our other guests used it as well, but you can use it on residential properties that you live in. It has to be owner occupied. They go up to four units, but it’s 0% down and no closing cost. So most people are able to get in. I think Nancy said she got a check at closing for like five grand-

Rachel:
That’s amazing.

Tony:
… because she got a seller credit also. Just as you’re looking for your next house hack maybe here in Denver, look up NACA.

Rachel:
Oh, that’s cool. I will. Yeah, thanks for the rec. In terms of the other numbers, I’m projecting revenue of 8k a month, but I think it might end up being more than that, and my profit after all of the mortgage, all of the expenses are taken out, will be about $1,800 a month, but again, I think it might end up being a little bit more than that. We’ll see.

Ashley:
And that’s with you living?

Rachel:
That’s with me. I think that’s with me not living in it.

Ashley:
Okay. Okay.

Tony:
Okay.

Ashley:
And I will be only living in this property five or six months out of the year because I travel so much.

Tony:
Are you going to short-term rent it while you’re gone?

Rachel:
Yeah, yeah.

Ashley:
Oh, okay.

Rachel:
I’ll spend six months in Denver in the summers, and then I chase the sun, I chase the warmth, so I go to South America in the winters typically. I will be getting that cash flow a good part of the year, and I think it’ll be higher than that, and then my cash on cash ROI, I think I’m rejecting right now 5.6%, but we’ll see how the numbers actually play out. I do think it could be more than that so I’m pretty excited.

Tony:
Yeah, it’s amazing.

Ashley:
And what about appreciation for your area too?

Rachel:
I don’t account for appreciation in my numbers. I think that there’s a lot of potential for appreciation. The reason I don’t account for appreciation is because I don’t think it can always happen as we saw in 2007 and 2008. I’m also used to investing in Kentucky which is not a market known for appreciation. I know that’s a big thing in Denver. I just always think you make money when you buy, not when you sell, and I think it’s a really risky thing to buy a property on the basis of I’ll make money if it appreciates. I always make sure that I’m going to make money based on cash flow and nothing else. All these numbers that I’m talking about, they don’t take into account appreciation. They don’t take into account even tax benefits. This is strictly a cash flow, these are just cash flow numbers.

Ashley:
Yeah.

Tony:
I don’t know the answer to this, so maybe you guys can educate me, but if you’re doing multifamily, can you cost seg multifamily if you’re house hacking?

Rachel:
Yes. Oh my gosh, fun story on that.

Tony:
Okay.

Rachel:
I’ve been wanting to do a cost segregation study on this property ever since I bought it because not only the price of the property, but the renovation I did should be really effective for me for a cost segregation study. Do y’all know Yonah Weiss?

Tony:
Yeah.

Rachel:
Okay. He’s like the cost segregation guy, right?

Tony:
Yeah.

Ashley:
Yeah.

Rachel:
He did a giveaway two weeks ago, maybe. He was like, “I’m giving away a cost segregation study,” and you guys know how much these cost, right?

Ashley:
Yeah.

Tony:
Yeah.

Ashley:
Like five grand or something, or 10 grand, I don’t even know. I entered the giveaway, and then last week he announced the winner. Guess what?

Tony:
moneyhoneyrachel.

Rachel:
I was like, “Shut up.” I could not believe it. It’s been karma coming my way. I won a cost segregation.

Tony:
That’s beautiful.

Rachel:
Yeah, I was so excited.

Ashley:
We’ll have to have you back on to share. That’s serious.

Tony:
Yeah.

Ashley:
I know. I know. I can’t believe it. So I will be doing a cross segregation study.

Tony:
That’s awesome. That’s good to know. See, I wasn’t sure, because I’m pretty sure you can’t do a cost seg on your single family house that you live in, but I thought maybe if it’s multifamily since it’s also an investment that you can do that. That’s cool. That’s good to know. Another reason that house hacks on multifamily are so powerful. That’s amazing.

Rachel:
Win, big win.

Tony:
Yeah. That’s so crazy because you can get in for a lower down payment, better interest rate, and you can cost seg if you’re doing multifamily.

Rachel:
Yeah.

Tony:
That’s cool.

Rachel:
Oh, another cool thing to share on this property is the interest rate thing because it is harder to buy a property right now with interest rates being high, and I think my interest rate on this property was 6.75% or something like that. A lot of people thought about doing a buydown on the interest rate, but at the time I was like, “I don’t want to spend all this money on a buydown when you could potentially-”

Tony:
Sorry, could you explain what a buydown is really quick?

Rachel:
Yeah, a buydown is when you pay money upfront, you pay points to buydown the interest rate on the mortgage. You might pay thousands of dollars upfront, but then your interest rate’s going to be lower. My thought was I don’t want to do that if potentially interest rates might go down in a few years anyway and then I could just refinance at that time. What I did, and Mike Stone was my lender, I don’t know if y’all know Mike Stone, he’s a great popular lender that a lot of people use here in Denver, he ended up proposing something to me called a temporary 2-1 buydown. The way this works is it still costs money upfront and I think the total cost of this was $25,000 or something, but if I choose to refinance within this two-year period, because it’s only a buydown for two years, so it buys down my interest rate just for 24 months, but if I refinance within the two-year period, I get that 20… Any part of that $25,000 that wasn’t used, I get sort of refunded back those points that weren’t used, prorated.

Ashley:
Oh.

Rachel:
Does that make sense?

Ashley:
Yeah.

Tony:
Yeah, yeah.

Rachel:
I was like, “I don’t see any downside to this because either I’ll use the whole buydown for the two-year period and it helps me, or if I refinance in six months or a year, I’m going to get some of that $25,000 back that was spent,” and that’s what that $30,000 seller’s concession went towards.

Ashley:
Oh.

Rachel:
So the sellers paid for it, not me, and then if I do it anyways, then I get that money back. I think that’s a really good solution right now for people who are trying to get that interest rate down a little bit but still might refinance in the next couple years.

Ashley:
After that two years, do you know what your interest rate goes to?

Rachel:
That 6.75%.

Ashley:
Okay.

Tony:
Oh, so you’re at a 4.75 right now?

Rachel:
I don’t know exactly what it is. I don’t remember what we bought it down to because I don’t remember the numbers, but something around that.

Tony:
Wow.

Rachel:
My mortgage payment is like $3,900 right now.

Tony:
Wow. That’s pretty good.

Rachel:
And then it goes up a little bit after year one and then up to the full amount after year two.

Ashley:
And then it’s for 30 years?

Rachel:
Then it’s at the full amount for 30 years.

Ashley:
Hm, [inaudible 00:48:27].

Rachel:
But it gives me a little bit of wiggle room. I think that’s a really good solution, but I just want to throw that out there because I thought of it.

Tony:
Yeah.

Ashley:
Yeah. Darrell actually just bought a primary residence, but he did a 7/1 ARM.

Rachel:
Oh.

Ashley:
For for another seven years it’s fixed, and you get it for 5.125% which is [inaudible 00:48:46].

Tony:
That’s pretty good.

Rachel:
Wow.

Ashley:
Within the seven years, basically he has to refinance or else it can go up to like 9%.

Rachel:
Yeah.

Ashley:
I think it’s like the floor is 4% and the highest is 9%.

Tony:
Oh, but there is a cap. Oh, that’s cool. At least there’s a cap.

Ashley:
Yes, yes. There is a cap. Yeah, yeah, yeah.

Rachel:
Yeah, that’s another good option. I think you asked about renovation budget too.

Ashley:
Yeah. How did the renovation work? What did you budget for? What did it end up being?

Rachel:
I made so many mistakes. I think we’ve talked about three or four huge mistakes already that I’ve made. This is another big mistake I made, and it was just about the renovation budget for the… I wouldn’t really consider it a mistake. Anyways, the renovation budget that was approved with Zosia and Tyler was 180k. One thing I’m happy that I did is hiring Zosia and Tyler because they were not the cheapest contractor, but on my Real Estate episode, I talked about how you should not hire the cheapest person because I’ve made that mistake too many times and it can end up costing you a lot more in the long run.
I definitely got cheaper quotes for this renovation, and I got more expensive quotes, and I knew that Tyler and Zosia were reputable contractors, licensed. I trusted them. I knew that they were going to do what they said they were going to do and they were going to do it on time, whereas these other contractors that were cheaper, I just didn’t know how that experience was going to be. That’s why I decided to hire Tyler and Zosia, best decision I ever made. It was literally the best contracting experience I’ve ever had in my seven-year career as a real estate investor.

Tony:
That’s amazing.

Rachel:
Everything was on time. There were no surprises with them as contractors. They did all the right things. It was just fabulous. I can’t say enough good things about them.

Ashley:
How much credit did they give you to say this today?

Rachel:
Yeah, they’re going to write me a check later. Yeah.

Ashley:
Do you [inaudible 00:50:35]?

Rachel:
Yeah. They were incredible. It was 180k. Now, in my projections and in my analysis, I budgeted for $220,000 for the renovation because my rule of thumb is whatever the contractor gives you, you always put a 20 to 25% buffer on top of that. I put another 40 K on top of that, which is about 20 to 25%, because you just don’t ever know. My actual costs are going to be right at about 220k.

Ashley:
Wow, [inaudible 00:51:08].

Rachel:
Yeah. So that whole buffer is definitely getting taken up, and it’s not because of anything they did, it’s just because of things that came up that I didn’t know about. For example, I decided to put in a privacy fence around the whole duplex that divided the yard in half. That was $10,000. Also, and this wasn’t, I don’t really know whose fault this was, it’s not necessarily anybody’s fault, but I didn’t realize until after I bought the property and about two months into the renovation that this property did not have AC, and I don’t know how that happened.

Ashley:
Isn’t it funny the simple things you miss just because you almost kind of expect it? When it’s not there, [inaudible 00:51:45]

Rachel:
Yeah. It’s not uncommon in Denver for a property to not have AC, but it’s definitely not common at this point, and the inspector didn’t flag it for me. It’s not like it was something that wasn’t functioning, but I would’ve still expected the inspector to say, “Hey, by the way.”

Ashley:
Yeah.

Tony:
There’s no HVAC.

Rachel:
Yeah, there was a furnace, there was heat, but no AC. I didn’t know, closed on the property, and then even into the renovations, didn’t know because maybe Tyler and Zosia already thought that I knew, honestly. Then I’m there moving in and it’s really hot, and I turn on the AC and there’s nothing, and I was like, “Oh my god, I don’t have AC and I need it.” I’m a girl who needs AC. It gets hot here in the summer. So that’s $22,000 that I’m like, “We need to do this.”
And then the other decision I made, which I’m really glad I made this decision, is I added in egress windows into the basement units. And so egress window is a window that you add into a basement bedroom to make sure… First of all, it makes the bedroom a conforming bedroom so that when you sell the property, you can actually say, “Hey, this is a actual bedroom of this house,” because a bedroom has to have windows of the right size and it has to have a closet to actually count as a bedroom. Otherwise, it’s just an office or just an extra room.
That’s not the reason I wanted the egress window. I wanted my tenants in the basement to have two fire escapes. For me, it was just a liability reason. They obviously already had the stairs to escape to the outside, but I wanted to make sure there was at least one other legal conforming exit in case of fire. So I made sure there was at least one egress window in each basement unit, and that wasn’t something I originally planned for in the renovation but I later added in, and I’m really glad I did that.

Ashley:
Well, we’re currently slumming it in Tyler and Zosia’s super nice basement, and I stayed their egress when it was really kind of-

Tony:
Yeah. It’s [inaudible 00:53:47].

Ashley:
It had a ladder to get up.

Rachel:
Oh, nice.

Ashley:
Yeah. Not the right way.

Rachel:
I don’t have a ladder. I need a ladder.

Tony:
I want to ask, so you said it was like 220-ish for the rehab. Were you able to fund any of that through your loan, or was that all out of pocket for the rehab?

Rachel:
It was all out of pocket. That’s another solution. I didn’t look at rolling the renovation costs into the loan, but that’s something you can definitely do.

Tony:
And do you think, from an equity standpoint, have you built equity in the property at all? What do you think it would appraise for if you did that today?

Rachel:
Yeah, for sure, and that’s hard to tell. I did not buy this property as a BRRRR property. That really wasn’t my intention. Now I’m thinking I might do that just in case I need the cash, I want to invest more. At this point, I could probably pull out two or 300 grand in equity if I do a cash-out refinance.

Tony:
Gotcha.

Rachel:
I think it would appraise for at least a million dollars.

Tony:
That’s amazing. Yeah.

Rachel:
That’s my feeling, [inaudible 00:54:42]. So we’ll see. I might do that in the next year or year and a half. I have some time, but right now I have a tiny bit of money left, so see how long…

Tony:
You got to see what happens, right?

Rachel:
I’ve just been like, here, syndication investment, writing checks. I’m like, “Oh my gosh, I’ve never spent so much money so quickly.” This is the Denver market for you, so yeah.

Ashley:
Well, I think a big difference too is investment versus just spending money.

Rachel:
Yeah, yeah. I’m like, “Oh my god, my bank account.”

Ashley:
Yeah.

Rachel:
Scary.

Ashley:
Well, thank you so much for sharing the numbers and the story of lessons learned and also the success of this first house hack for you, and congratulations.

Rachel:
Thank you. I appreciate it.

Ashley:
Do you want to go to our rookie exam?

Tony:
Yeah, let’s hit it.

Ashley:
Our first question for you is what is one actual thing rookies should do today after listening to this episode?

Rachel:
Okay, I have two pieces of advice. I’m going to cheat and give you two.

Tony:
Yeah, it’s good. Give us two.

Rachel:
Okay. Number one is we talked a little bit about this earlier and just kind of taking action, and one thing I tell my students when they’re stuck on the analysis paralysis because I think that’s one of the hardest things when you’re new to investing is there’s all these strategies and there’s all these markets and it’s like, where do I begin, how do I move forward. I think the hard part about analysis paralysis is you have this fear of if I pick one thing, but what if there’s something better. If I go in this market, but what if this other market’s a lot better? I always tell people, just because you pick one thing doesn’t mean you’re necessarily saying no to something else. It’s just that you’re saying later to something else, right?
You can invest in Cleveland, Ohio if that’s where you want to invest, and if you’re really torn between Cleveland, Ohio and Memphis, Tennessee, just do Memphis later. It doesn’t necessarily mean you have to say no to all these other exciting options that are out there for you. Just do that one later. But the important thing to do is to pick a strategy and stick to it, otherwise you are going to be stuck forever. That’s my biggest advice on analysis paralysis.
The other piece of advice is that it is okay to take imperfect action. This whole time, I’ve just been going with it and making things up as I go, and I hope that’s the takeaway is that none of this has gone the way I predicted. I have had to change my strategy and learn this entire time that I’ve done this duplex house hack into a quad. I remember calling Craig, my realtor, in February before I closed on my property and having so much fear, and I second guessed myself for weeks and weeks as I was about to close on this property, and I remember calling him and saying, “Oh my gosh, what am I doing? Who do I think I am buying an $800,000 house? I’ve never done this before. Is this really good idea? Should I do this?”
Craig’s a really good person, he has a lot of integrity and he’s my close friend too, so he would never talk me into doing something that was stupid. He was like, “Rachel, it’s going to be okay. This is a really good investment property, and I know it feels scary now, but in 10 years from now, this is going to be one of the best things you ever did for yourself.” He talked me off the ledge as a good friend does, and I was like, “Okay, it’s going to be fine.” And I knew logically, I had run the numbers, I knew logically this was a good decision. It’s just that I had this emotional turmoil and this fear inside of me.

Ashley:
It’s the mindset, and that’s what holds so many people up from actually taking action.

Rachel:
Exactly. And I felt so vulnerable doing this for the first time alone and this big property and all this stuff that I had never done before, and I think I realized in that moment that every investor has that fear. No matter how experienced you are, no matter how many rental properties I had bought before, I had so many of those moments where I was like, “This is really scary and I don’t think I should do this.” But what separates successful investors from people who can’t quite get there, it’s not that they don’t have fear, it’s that they take action despite the fear that they have, is that they decide, “You know what? This is scary, but I’m going to move forward even though this is the way I feel because I’ve done my homework. Logically, I know this is going to be okay and I’m going to do it. I’m going to do it anyways.” So that is my best advice.

Tony:
I love hearing that about moving forward in spite of the fear, and this framework that I have for myself, and I read it in a personal development book or blog or something a while ago, but it’s like you can think of your life in three circles. That first circle is your comfort zone. That’s where you know everything, you feel good there, you can do it in your sleep, right? Outside of your comfort zone is your growth zone, and that’s where you’re pushing beyond, just beyond what you’re currently capable of doing, and that’s where you learn new skills. That’s where you develop new abilities. And then beyond your growth zone is the danger zone. That’s when you’ve overextended yourself and you’re getting into maybe actions that are reckless or that could have potential negative impacts. So many people struggle to differentiate between those three circles, and what they’re doing is stepping into the growth zone, but because of this fear, they think they’re in the danger zone.
It’s like you got to be able to frame things in the right way. Is this the next logical step for me to take based on everything I’ve done so far, and if the answer is yes, just because you haven’t done it before doesn’t mean you’re not capable of doing it, right? Just, everyone that’s listening, ask yourself that question, am I moving into my growth zone or am I moving into my danger zone, and allow that to kind of help you guide your decisions.

Rachel:
That’s a really great way of putting it.

Ashley:
Yeah.

Rachel:
Was that a book?

Tony:
I don’t even remember.

Rachel:
I want to find that.

Tony:
Yeah, I read it a long time ago and it just stuck with me.

Rachel:
That’s really cool.

Tony:
If you’re listening to this, I promise I’m not taking credit if this is your idea. I just don’t remember where I read it.

Ashley:
Tony dreamed it one night.

Rachel:
That’s really cool.

Ashley:
Yeah, it’s a completely original idea. All right, question number two, so what’s one software, app, tool, or system that you use in your business?

Rachel:
Definitely TaskRabbit has been my saving grace. My mom, I flew my mom out in April when I first moved into this duplex to help me just furnish my unit and get moved in. We made an IKEA trip. We were putting together an IKEA bed. I don’t know if y’all have put together IKEA furniture.

Tony:
It’s the worst.

Rachel:
It is the worst thing I’ve ever done in my life.

Tony:
I had [inaudible 01:00:58] my first IKEA bed.

Rachel:
I posted this story on my IG of me just frustrated trying to put this bed together, and it was like, I have been marked safe from putting together IKEA furniture. But I did it. We could not get the bed together. It took us two hours and I gave up, and they were like, “Hire someone from TaskRabbit.” And I was like, “Oh yeah.” I’ve never used it before, but I should. And so I have my TaskRabbit guy, Josh. I will pay him any amount of money. Okay, he is so good, like take my money. His rate’s $47 an hour, and I know that sounds like a lot, but he’s worth every penny. If Josh is listening, I’ll pay you more.
I’ve probably, at this point, paid him $1,200 total because he’s come over three or four times and put together, I don’t know, 12 or 15 pieces of furniture now. But this is where it goes back to delegating my time. I can do things that generate more revenue than that in an hour, and it’s better. It’s also just peace of mind. I don’t need to cry more than I’ve already cried. I’ve cried over lampshades. I’ve cried over refrigerators. We need less of that and more of Josh doing my furniture assembly. So TaskRabbit has been my saving grace.

Ashley:
And that is such a big thing of looking at how much time to pay someone verse what you can make in that same amount of time.

Rachel:
Right.

Ashley:
I think one of the easiest ways for me to find that value is somebody cleaning my house. They can do it so much faster than I can do it and so much better, and what they’re paid an hour, I can make more money actually working during that timeframe.

Rachel:
Exactly. Or I’d rather just go on a hike. That’s worth my money spent too.

Tony:
Or just doing nothing, right? [inaudible 01:02:40].

Rachel:
Yeah, I sit and stare the wall.

Tony:
No, it’s worth it.

Ashley:
Okay. So our last question is where do you plan on being in five years?

Rachel:
I love my life and I feel really grateful to have gotten to a point and designed a life that I don’t know if I see it changing that much. I mean, I feel really fortunate to have a good work life, except for the last three weeks, I’ve been working on this property nonstop, not very passive right now. I talk about stages of passive income. Stage one is where you’re building the passive income stream and it’s 100% active. That’s where we’re at. If you ever hear people talking about real estate being passive, it can be a lot more hands-off in the long run, but it’s never 100% passive, even with a property manager. Keep that in mind.
I know I’m going off on a tangent now, but ultimately I do really like the life that I have. I can go hiking during the week and I travel a ton and I go to South America in the winters and I have a lot of freedom, so I don’t know if I see it changing a lot. I just like to travel and hike and go to the gym. I think maybe I’ll find my life partner in the next five years. That would be really nice. But yeah, that’s where, and just help more people with real estate investing.

Ashley:
You’re [inaudible 01:03:56].

Rachel:
Yeah.

Tony:
Yeah. Let me ask because I love that answer because something that I struggle with is this insatiable ambition where I just want to keep growing and building and faster and more. I think there’s good to that, but it’s also why. Why do you want to keep doing that? I can’t even really answer that question. How do you balance, yeah, I’ve built this lifestyle that I really enjoy with the ambition for more?

Rachel:
Mm-hmm. Actually, that’s a really interesting question, Tony, because I’ve recognized in recent years that I’ll go through these phases of extreme rest and non-productivity, and then these phases where I’m on top of it and I’m doing stuff and workaholic mode, and I don’t necessarily want that. I want to be more balanced overall. But I’ve talked to my business coach and my therapist a lot about where that comes from, and a lot of it is because growing up, my parents did not have a lot of money, and so I grew up in this environment where money was stressful. We didn’t have a lot. That’s where my drive to achieve financial independence came from.
But I also grew up, when I was really young, they did have a lot and then it all got taken away, and that’s where the money stress started coming from. So I also learned you can be comfortable financially and it can all be taken away. So I’ll go through these phases where I’m like, “Okay, I have to work. I have to work, I have to hustle,” and then I’ll feel comfortable for a moment and I’ll take my foot off the brake, but then I’ll remember, “Oh my gosh, this could all be taken from me,” and I’ll go into work mode again.
So I’m working through that to try to balance it out, but I think one of the interesting things is what we’re doing right now, how does that relate to things that happened 20 or 30 years ago because I think a lot of our motivation or demotivation is tied to our childhood and what shaped us growing up. To me, I mean, that’s what I’m working on and that’s where it comes from for me. That’s just my personal experience. I don’t know if that helps at all, but it’s just interesting.

Tony:
No, it is, yeah. I feel like I resonate with that too because same thing happened. My dad was like a general manager and he ended up losing his job, company went bankrupt. Literally, he walked into work one day and they’re like, “Hey, this is the last day that you’re going to be here.” It caused financial strife from my parents’ life as well, and then becoming a dad at 16, all these different things around money and finances, I think I have this fear around not having enough also, and I think it’s helpful in some instances, but I also know that ambition can be a bad thing if you don’t tame it and you don’t use it the right way. I always try and strike that balance also.

Rachel:
Yeah, I think a lot of us who are this hustler, ambitious, have achieved financial independence or are close to it, we’re still in this survival mode from a long time ago, and it’s working on, okay, we have enough, it’s okay to slow down and just enjoy it.

Tony:
Right, enjoy.

Rachel:
And that’s taken me a long time. I’m a lot better at it now than I used to be, but it still can be really hard.

Tony:
Yeah.

Ashley:
I think the hard part is not slowing down too much where you get too comfortable and it’s like finding that happy medium.

Rachel:
Right. Yeah, that’s ongoing struggle for me.

Ashley:
For sure.

Tony:
All right, cool.

Ashley:
Good. Well, let’s give a big shout-out to our rookie rockstar this week, Robert [inaudible 01:07:12]. This is his first project that he has completed, and it took him over 17 months. He bought an off-market deal, two unit for 660,000, and did an extensive rehab for both units. A lot of stuff went wrong, including delays with permits, but so much also went right. 13 months and about 4,000 hours of his time later and both are rented. He is living in the third unit that he completed a VA cash out refinance, and the property appraised at 1.4 million.

Tony:
Wow. Congratulations.

Ashley:
Awesome. Yeah, congratulations, Robert. And if you guys want to share your rookie rockstar win or even a lesson learned, we love those two to share, you can post in the Real Estate Rookie Facebook group, or send a DM to Tony or I on Instagram. Well, Rachel, thank you so much for joining us in person here in Denver today. We really appreciate it. Can you let everyone know where they can reach out to you and find out some more information?

Rachel:
Yes, thank you both. This has been super fun. I appreciate it. My Instagram is moneyhoneyrachel, and both of my books are on Amazon, Money Honey and Passive Income, Aggressive Retirement. I would love to share with you all my Passive Income Starter Kit for free. If you would like to download that, you can go to moneyhoneyrachel.com/passive income.

Ashley:
We love free stuff here. Please go and check that out. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson on Instagram, and we will be back again on Wednesday with a guest.
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