Paying Off $100K in Debt with 3 Rentals Thanks to THIS Low-Money Strategy

Ashley:
This is Real Estate Rookie, episode 378. What do you want your life to look like? Today, we are going to discuss that feeling of realizing you want your life to look different and making that transition through real estate. My name is Ashley Kehr, and I am here with my co-host, Tony J. Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today, we are here with Dave Williams out of the Denver area. Now, Dave and his wife, they were traveling physical therapists who soon realized that they wouldn’t be able to live the life they wanted by only relying on their W2s, and through creative use of HELOCs, house hacking, and doing value-add, basically, like live-in flips and their primary residences, they’ve paid off $100,000 in debt, and they’re living life on their terms with, get this, only three properties. Now, Dave is also a real estate agent, and he’ll share some tips that he’s learned through DIY, and what really moves the needle for renovations, and what to do when your property is flooded three times. So, Dave, super excited to have you in the Rookie Podcast today. Welcome, brother.

Dave:
Hey, thank you so much. I’m super grateful to be here and excited for our conversation.

Tony:
Dave, we originally met actually, I think, over a cold beer inside of Tyler and Zosia Madden’s house at a meet-up they hosted. So love that we actually get to dive into your story here on the Rookie Podcast for everyone, man.

Dave:
Yeah, man. I think all good relationships start over a cold beer at someone’s house or an establishment. So, yeah, I’m glad to continue the conversation here.

Ashley:
Dave, before you were smooshing elbows with Tony at a fancy gala at the Madden’s house, what was life like for you before?

Dave:
Yeah. So I started my career as a physical therapist, met my wife at physical therapy school at Duke, got out of school, and like, “This is what we’re going to do.” We were travel physical therapists for two years, bouncing all over the country, having a great time. When we got married, we decided, “Okay. Next step in adulthood is that we can’t keep traveling,” so we moved to Denver, took full-time W2 jobs as home health physical therapists. I did that for about six years, my wife for about seven years. Somewhere around that five-year mark, we started to really question, “Is this going to be the tool to create the life that we really want to create?”

Ashley:
So, looking forward now, what has changed since that point in time?

Dave:
Everything. We were both hustling, working a lot of hours, but as a physical therapist, there’s so many benefits and things that I loved about being a physical therapist. However, it became a very capped from a financial standpoint as well as a career growth standpoint, so we started to really look at what do we want life to really look like. We read The Five Love Languages, and we had the hardest time in really figuring out what our love languages were. We went camping one weekend, and it just became so apparent it was just quality time together, and we knew that busting our butts doing physical therapy for the next 30, 40 years didn’t allow us to have that quality time together. So then, we really started to search like, “What other options and tools are out there to help us get to that life that when we wake up every day, we get to choose how we spend our time?”

Tony:
Dave, looking at your bigger picture now, just maybe lay the foundation for us. What is your real estate portfolio? What does your life look like today?

Dave:
Yeah. So we own two investment properties. We recently sold a primary property that we lived in to help pay off a bunch of student debt. I went to Duke, a private school, which is a tremendous amount of money. So we’ve been able to use real estate to… One, we take the cashflow from the properties that we use now. That helped my wife to stay home with our 1-year-old child, and so we’ve been able to create time in that way. We sold that property to pay off the debt, and so we hold two. We keep them as long-term rentals here in the Denver market, and then we’re still in the process of… We buy them as a primary, live in them, and eventually move out and hold them as rentals. So the current house we’re in now, we’ll go ahead and do that at least one more time before our kid gets to school age, and we have to start thinking about settling into a longer-term place to live.

Ashley:
So what was that shift like going from working a ton of hours, both of you, to decreasing that? What I always think of for somebody who… physical therapy. You have to go to school for quite a while to actually get that degree, correct? Was there any kind of hesitation as to, “This is what I worked so hard for was this career?” How was that transition into, “I’m going to end up doing something that, honestly, you don’t even need a degree for and let alone an expensive degree for?”

Dave:
Yeah. Great question. I think it all came step by step. So, originally, it was digging in to BiggerPockets, listen to a ton of BiggerPockets, and that really showed that real estate was the tool that was going to help us to get to the life that we wanted to live from an investment standpoint. Then, as I became passionate about real estate, that correlated with getting burnt out doing physical therapy, and so that’s when we made that decision. I’m going to look at changing careers to become a real estate agent as well. For me, I think the only thing constant in life is changed, and so I was able to embrace that. My wife was super supportive, a firm believer in making that change as well. So maybe there’s some… from outside pressure and people questioning like, “You got your doctorate. You put all these years into school. Are you sure that this is something that you want to do?”
To me, that’s just a sunk-cost fallacy, right? Because I did something before. I don’t want that to dictate the rest of my life, and so the change actually came fairly naturally, and we did it in a step-by-step process, so it wasn’t… We didn’t go all in, and so we’ve slowly been building towards that life that we want to live, but making sure that we focus along the way to step-by-step create that life, knowing that we’ll eventually get there, but the journey is so important to us, and we don’t want to like, “Oh, when we’re 55, we’re going to be able to retire at 40,” or whatever that may be like, “Let’s build this life every single step that we can.”

Ashley:
Dave, we’re going to take a short break, and when we come back, I want to hit on how you had to stay on track financially. Was there budgeting, or what kind of changes did you have to make to your life financially to also make this transition to the life that you wanted? So we’ll be right back.
Okay. Welcome back from our short break. So, Dave, please tell us, what were the changes you had to make financially to be able to start investing in real estate, to be able to cut down on working as a physical therapist?

Dave:
Yeah. So when we were both physical therapists and we decided we’re going to buy our first house, the first house wasn’t bought as an investment strategy. It was like, “This is the next step in being an adult.” We’ve gotten married. We moved to one place. We’re going to buy a primary home. In doing so, we both were W2 jobs, so it’s trading time for money. So we both picked up as many shifts as we could as well as we were really strict on a budget. So we had a monthly budget spreadsheet that we would go through every month. We’d stay on track with that. So that helped us get into that first house.
Then, after living there for a couple of years, realizing that that was our biggest expense was our mortgage, house hacking and renting out the basement became the next step to go ahead and increase that income a little bit more while we continued to hustle. As time has gone, I mean, even in a short period of time from 2017 to now, real estate in Denver has jumped up even significantly more expensively, and so becoming a real estate agent, when the market gets more expensive, we’re paid on a commission-based percentage of the sale, and so it helps to adjust for properties becoming more expensive in my new career to be able to account for that.

Tony:
Dave, one of the things you mentioned was budgeting, and I can see some people getting goosebumps on the back of their neck because the word “budgeting” just elicits sometimes these emotions that aren’t always positive. I think some people look at budgeting as almost not being able to live life to your fullest. So, I don’t know. I guess what was your and your wife’s perspective about like, “Hey, let’s buckle down and get on this budget together?”

Dave:
Yeah. I think the first step was being realistic about what we spent. So it was like audit what we were spending before and not have this thought that we’re not going to eat out anymore, and we’re not going to go drink cold beers, we’re not going to do any of that. So we were realistic about what we were spending, and then just slowly tightened from there. For me personally, I find freedom in knowing that everything else is dialed in, and so I didn’t feel constrained. I just felt like, “Hey, I know we’re sticking to the budget. I know we’re checking in regularly on it.” So that, to me, allowed some freedom to just know that we were on the track and not have to think about it all the time because we had those regular check-ins.

Ashley:
The best that I ever was at budgeting was when I was trying to pay off my student loan debt. I literally spent no money because that excitement, that adrenaline rush of paying $3 towards my student loans was more exciting to me than getting a coffee in the morning. So if your goal is big enough, and you are using something to track your goal, and you have some kind of reminder of your goal, and it goes back to that smart goal is the measurement of it that is so big in helping you actually see the progress in your goal, that’s going to become more attainable and more exciting to you than the other things that you thought were important to you spending money on. So that was a huge motivator for me is to keeping track of every single penny that I could dump into my student loans and saying no to expenses that I thought I needed, but I actually didn’t need.

Tony:
Ash, you bring up such a good point. It’s like having an emotional connection behind the budgeting makes it a little bit easier. I was saying I can pinpoint when I got really serious about budgeting, and it was when I was saving for two things at the same time. I was saving for the down payment for my first primary residence, and I was saving for Sarah’s engagement ring. Right? What two big life events that you want to put as much money towards at as you can? So it’s like if you’re a rookie, and you’re listening to this, try and frame that first real estate investment as monumental of a moment as buying your first primary residence or buying the engagement ring for your spouse.

Ashley:
Or paying off your student loans.

Tony:
Or paying off your student loans.

Dave:
Yeah. We were so aligned on our why, and our why was so powerful, and we knew that every time that we could purchase another property, that that pushed us so much closer to getting to that goal, then it really wasn’t a challenge for us. It was just something that was like we knew this is what we needed to do. We knew what the numbers needed to be, and so we were able to just make it happen.

Ashley:
I am so motivated off of an accomplishment, or if I don’t have a goal set, I will literally just spend money on a trip with the kids because it’s something to look forward to because I don’t have a goal set, and then it’s just spending frivolous money to go on this trip with the kids which is great. It’s an experience, and they look forward to it, and we enjoy it, but that money could also be saved to something else to accomplish. I’ve realized that about myself over the years is that if I don’t have a goal, there’s no budgeting, and not even budgeting, but there’s no tracking of my money because I have no motivation to that extra money, what to actually put it towards.

Tony:
Dave, I want to dig a little bit into the market that you’re working in because everyone’s got a different perspective when it comes to markets and where you invest. I’m in a somewhat expensive market being in southern California outside of Los Angeles. Ash is in a maybe less expensive market outside of Buffalo, New York. So there’s different perspectives on how do you choose your city. Now, you’re in Denver which has grown to be one of the more expensive markets there are to invest into. So I guess what did you see in Denver that made you confident to invest in that market as opposed to maybe doing some long distance real estate investing in the Midwest?

Dave:
Yeah. I think for one, just being here, I know the market. Two, it’s such a desirable place to live. It’s 300 days of sunshine, a diverse, robust economy. The lifestyle is something that attracts a ton of people. If you don’t want to live on the Coast, then Denver quickly becomes the next place, and so frequently, we’ve seen people just like us, young couples right out of college or out of grad school, whatever that may be, moving to Denver. We’ve, in the short period of time, have seen so much growth here, so we knew for one from that long-term wealth-building strategy that the appreciation in Denver is going to be very… We’re very confident in that.
Then, two, we then use strategies to help us, especially when we were both physical therapists as moderate earners to… If we can’t just go out there and put 20%, 25% down on investment properties here, what can we do? We’re okay to be uncomfortable and to move every one to two years. We’re okay to live in a renovation. We’re okay to rent out the basement. So we utilize those other strategies to help us be able to continue to invest here, and now we are able to reap the benefits of both great cashflow and long-term appreciation. To me, it seemed… That’s less risky to me. I’m so confident in this market rather than going out to a different market and not having as much confidence.

Ashley:
Dave, I want to ask specifically on different strategies. If you have clients coming in, they’ve never been to Denver, and let’s say one wants to flip a house, one wants to house hack, and one just wants to invest in a rental property, do you have different markets, different neighborhoods that you would recommend to each of those different clients?

Dave:
Yeah. Absolutely. First and foremost, on flipping. I think a lot of times, people underestimate the difficulty in hiring good contractors, staying on budget during a flip, and being able to really create a successful home, and finding good help in a market where everybody is looking for good help. So that’s super deal dependent, and so finding the right avenues, and finding the right deal source, and making sure that you buy at the right price is extremely important there. That way, you’ve got that wiggle room on that exit because it’s going to cost more than you think to renovate it, and it’s going to take longer than you think to renovate it.
Then, for house hacking, yeah, I always like to look at the neighborhood, one outside of the growth, one outside of the most popular places to live, and you can really see that progress coming. Then, from there, it’s house hacking, or where to flip, or where to live is going to be that comfort. Do you want to live in the nice neighborhood? Well, then you’re maybe not going to see that super fast appreciation in the neighborhood where we’re starting to see a lot of flippers come in, we’re starting to see a lot of development come in, we’re starting to see that renovation grow. Yeah, it may be a little bit undesirable for a year or two, but you’re going to be in the fastest path of appreciation, so I always like that, just that one step out.
I love to be somewhat around a local commercial area. So we invest a lot in Arvada which has got a light rail to it. It’s got its own little downtown, but we’re not in the heart of the city, but we’re on the west side of I25, so we’re on the side of the mountains. I always love that because the mountains… It’s not quite the ocean, but it is a physical barrier to growth. Whereas to the east of Denver, they’re going to just build new, and new, and new, and it’s just going to spread, and spread, and spread. So I love to advise people west side is possible and to use that as an advantage, to know that the land is gone, and so the appreciation is going to be even more significant.

Ashley:
Do you have some insider information of specific neighborhoods that our listeners should be checking into? So you mentioned Arvada. Is there any other ones?

Dave:
I think South Denver is a popular area for folks right now as far as a lot of turnover there. So I’ve got great proximity to downtown for people that work down there. You still can be on the west side of 25. I love, yeah, Arvada, Wheat Ridge. Yeah, Inglewood. I too, I like the outskirts outside of Denver. Denver’s got some stricter regulations both on short-term and long-term rentals, and so being in some of the suburbs, you get all the benefits of being in Denver, all the benefits of being in Colorado and mountain access with maybe less regulation. So I think that’s a good strategy as well.

Ashley:
Okay. So, everyone listening, I want you to go into your car, open up your middle council, pull out your map from the 90s of Denver, and I want you to go back and listen to what Dave just said, and you’re going to circle, you’re going to highlight, you’re going to draw lines, you’re going to listen to the roads that he mentioned as to what side you want to be on. This is valuable information if you are interested in investing in Colorado, in Denver. Dave just gave you great insights as to areas he recommends that you should be looking into. Of course, do your own research and make sure it fits your strategy, but take the time to go back, and listen to that piece, and really look on a map what areas he’s defining.

Tony:
Yeah. Ash, are you recommending that people actually print out physical maps?

Ashley:
I mean, everyone-

Tony:
We just lost 50% of our audience right now. Who even has-

Ashley:
Okay. You screenshot it on your phone, and then you go to “Edit,” and then you take the little draw tool, and then you draw.

Dave:
Ashley’s got the Rand McNally’s-

Tony:
Come on, Ashley. Just funny side story, right? My niece is eight years old, and somehow we’re talking about birthdays, and she was like, “Oh.” She calls me uncle. She’s like, “Uncle, what year were you born?” I said, “19.” Now, I didn’t even get to finish, and she was like, “19?” She was like, “You were born in the 1900s?” I was like, “Well, I don’t know about the 1900s, but yeah, I was born in the later part of that century.” Anyway, enough about me talking, getting to my middle age here. So, Dave, your strategy is moving into these properties, living in them while you’re doing the renovations, and then moving out afterwards to keep them as rentals. So I guess what advice or maybe tips would you have to someone who wants to turn a primary into a rental? Yeah. I guess what should my game plan be going into looking at properties if that’s my exit strategy?

Dave:
One thing, and I do this for all my clients, is like, “Let’s look at what the rental rate is on that property now. Let’s look at what your mortgage is, and then let’s apply how long do you think that you’re going to live there, and then we can apply a conservative rental appreciation.” Typically, we see about 4% here. During the COVID years, we saw 16% appreciation in rental rates, and so I always tell people like, “You can’t bank on 16%, but if you’re not in the game, you’re not going to get the benefits of it.” So, one, I think it’s a great strategy because, two, worst case scenario, you have your own place to live in. So if the numbers don’t work out day one, but they work out within three years, great, move out and rent. If it’s five years, at least you have your own property that you’re collecting appreciation on, and your money is going towards wealth-building strategy.
So I think that’s one good thing to do, buying where… and knowing in the area what type of renter would be there. So we’ve strategized small single-family homes. At first, we thought duplex is the way. We listen to BiggerPockets like, “House hack? We need a duplex.” There’s just not that many small multi-families and duplexes in Denver, and so buying these small single-family homes. Everybody that lives in Colorado has got a dog, so having a yard is super helpful. Having an outdoor space is super helpful and knowing that the people that are coming is a lot of young professionals. So if you can put yourself in an area where young professionals want to be, you don’t have to have a huge property, but you can have something that’s going to be really successful and really desirable.

Tony:
Dave, such great advice, and I just want to follow that up with one last question about your strategy here. There’s a lot of different loan products that people use when they buy real estate. For you, specifically, what have you found to be maybe the best loan product for your strategy of the live-in renovations that turn into rentals?

Dave:
Yeah, it depends on market and interest rate cycle, but one, by buying it as your primary, you’re going to get the option of the lowest percent down. Two, you’re going to get the access to the best interest rates that the lenders are willing to give, and then now, in our most recent purchase that we got in 2023, we used a two-one buydown. So, essentially, the seller gave a credit or concession to pay 2% of the interest rate for the first year, 1% of the interest rate for the second year, and we use that just to buy us time to… The plan is to be able to refinance. Nobody has their crystal ball, but everybody talks within 12 to 24 months, we’re hoping that there’s going to be an opportunity to refinance. We’re conservative. We don’t run our numbers banking on that, and I tell that to all my clients like, “You got to be comfortable with that year three payment. If not, then maybe it’s not the right strategy, but we want to be able to buy ourself a bit of time to keep our payments as low as possible, and then just be watching for the opportunity to refinance.”

Tony:
Dave, just to clarify, when you say two-one buydown, so if I’m understanding you correctly because I just want to make sure we explain this for our rookie audience, say that the interest rates today are, I don’t know, 6%, right? Just a flat number. A two-one buydown would mean that in your first year, you’re paying an interest rate of 4%, and next year, you’re paying an interest rate of 5%. In that final year is when it resets to whatever market rates were at the time. Am I understanding that correctly?

Dave:
Yeah, that’s exactly correct. The seller does have to give those contributions. You’re not able to do that yourself. You’re not able to purchase your own two-one buydown in your product, but we structure deals sometimes where maybe we offer over to cover that buydown cost, and then the seller gives that in concession back in order to do that temporary rate buydown.

Ashley:
We’re going to take a short break, but when we get back, we are going to find out what Dave’s biggest question is that he asked. Also, I know this isn’t a special episode of horror stories, but Dave does have one for us, and you know how I love to get into my investigative journalism. So we’ll be right back with that.
Okay, everyone. Welcome back to the show. We are here with Dave who just told us everything you need to know about the Denver market, and now we are going to go into one big question that Dave makes sure he always asks during a renovation. Dave, what is that question?

Dave:
So anytime that we’re in a renovation, my wife and I have this thing where it’s like one of us wants to do one thing, one wants to do another thing, and the question is always, “If we do that, how many more dollars per month will that make us as a rental?” More often than not, it’s zero when it comes to making the next… if it’s a design choice, but that is the filter that we use often is we want to make sure that we’re creating something that’s going to produce revenue on the backend. We really focus on, depending on the area, what bed/bath count. When we do renovations, we keep them fairly neutral because this is something… It’s not a flip that’s going to need to be on trend that we sell one time, but every time that we have a tenant turnover, we know that we need to resell that property. So keeping it neutral is something that we always focus on. We make sure that the kitchen is functional, good appliances, and then get super high-quality photos to help us to market that property.

Tony:
I love that point, Dave, about reselling your property to the next tenant. I’ve never really heard it phrased that way. Ash, I mean, are you thinking about that same thing when you have tenant turnover as well like-

Ashley:
How costly it is?

Tony:
Yeah.

Dave:
I don’t mind tenant turnover because it gives me an opportunity to adjust rent to current market values without having difficult conversations with tenants that have been great, and so typical turnover for us is one to two years. Again, we get a lot of young professionals. They either move here, and then they decide to buy, or they move here, and then maybe life starts, and they want to move back home to be closer to family with children or something like that. That’s part of our strategy and understanding that turnover is going to be part of it. Certainly, cost is involved in revamping the property and getting it back on the market, but the rental market is so strong and so many people moving here that I essentially run at a near 0% vacancy rate, a couple days in between, get cleaners and handyman in, and get it back on the market.

Ashley:
One thing we are having an issue with right now is residents wanting to switch apartments in the same building, and we’re trying to develop a strategy for this because not everybody takes care of their apartments, and not everybody’s pet takes care of their apartments. So how do we, without discriminating, approve one person, “Go ahead. You can move into this other apartment,” even though they have not taken care of the previous apartment that they’re in right now which moving to another one, they’re just going to destroy that one too, and then also, we have to renovate the one they’re moving out of? So we’re trying to find a process where we go in, and it’s almost like you’re submitting a whole new application with an inspection process of your current unit.
I did talk to another investor, and what she does is she charges a fee. So if you want to switch apartments, you have to pay a significant fee. So that’s something we’d have to bake into our leases going forward, but that’s one thing right now that It’s easier right now to… Like you said, Dave, you have no problems with turnover. It’s because it’s so easy to get tenants right now, and we’re having the same where it’s a lot easier for us to put a new tenant into place than to have tenants switch apartments and move in a property, for sure.

Tony:
Ashley, is it an actual fee that they’re charging or just an increased security deposit, or is it just a flat-out like a unit change fee?

Ashley:
It’s a flat-out fee. Yeah.

Tony:
Interesting. So when I was renting my first apartment, it was a big complex. It was like, I don’t know, 2,000 units in this place, and they’re going through and renovating the units. Every time I lease… I was there for, I don’t know, four years, I think. Every time my lease came up, they came to me and said, “Hey, you can stay in your unit at whatever X dollars per month, or you can move into one of our rehab units instead.” So they were trying to pull me out of the non-renovated unit because they wanted to go back and flip it. So it’s interesting how there’s different… Depending on the tenant. Maybe it might not be a good thing to get them into that newer unit, you know?

Ashley:
Yeah. The tenant we have is currently… It’s in a remodeled unit. It’s just maintenance has been in there, and it’s just the dog has already done damage to the property, and it’s just not clean and taken care of in there. The unit they’d be moving into, the people took care of it for years living in there, and it needs nothing done with it. But there’s also the flip side where we have moved people because they are amazing residents, and we don’t want to lose them to another property, so we accommodate them to get them moved into that situation. So it’s like drawing the fine line of how to decide as to who actually gets to transfer and being fair about it, so. Okay. So are there any other lessons learned that you have dealt with? Maybe this can actually lead us into your horror story of a costly and inconvenient lesson learned.

Dave:
Yeah. Every time I look at a property either for myself or a client, we’re always checking major stuff. The cosmetic stuff can always be changed. We’re looking for value-add, so we want that, but we’re always looking. In Colorado, foundation issues are not uncommon. We’ve got some soil that can expand and contract a tremendous amount, and it’s in different pockets throughout the front range metro area. So always looking at foundation and windows, roof. We get a lot of hailstorms here, so that’s important to check. Then, plumbing and electric, but the story I think you’re referring to relates to some foundation and a tremendous amount of water.

Ashley:
First of all, just hearing water makes me tense up, getting some anxiety because water in a property is never ever good. So what were the first signs of this horror story happening?

Dave:
So, this is right in 2020. The world was shook-up, and we were looking like, “We’re going to get a duplex. This is our second purchase. This is what we’re going to do.” That wasn’t really shaken out. We’d spent quite a bit of time on that search and not have anything come up fruitful, so we said, “We’re going to pause,” and then this property pops up in Edgewater, which is a super highly desirable neighborhood. It’s close to Sloan Lake. It’s got walkability to trendy bars, restaurants, and still super central to the city. So we’re like, “You know what? This would be a great value-add as well as the neighborhood that we really, really would love to own in.”
So house is built in 1909. There’s some disclosure of water in the basement. We get accredit to help adjust for some foundation issues as well as water during the contract when we’re under escrow to buy it. I go to do the final walkthrough a day before closing. There’s more water in the basement, and so it was like we had to go back to the negotiating table, got that figured out. So, as soon as we purchased the property, we started the renovations on this water mitigation. So, to do that, they went through. They excavated a couple feet around three walls of a basement bedroom. Because the house was built in 1909, it wasn’t originally built with a basement, so we think it was added later. Cinder block walls instead of a concrete foundation. So excavated and put on exterior moisture barrier. Great. We think we’ve handled it. We’ve done our due diligence. We’re dry.

Ashley:
Dave, first of all, the confidence to take on this kind of project, or what was this, your second deal?

Tony:
I’m shaking in my boots just hearing that.

Dave:
Everything can have a problem, and there’s a dollar amount to fix a problem. Sometimes that grows along the way, but we knew that this neighborhood was just slam dunk to be able to own in eventually. It was a small house, so we know if we can just hold this lot for a period of time that a development opportunity would be really beneficial in this neighborhood. The price was right, the numbers made sense, and so we went forward with it.

Tony:
I just want to ask one clarifying question because you said that there was no basement originally and that they added the basement afterwards.

Dave:
That’s the thought. When speaking with the foundation company, he said, “In this time period when the house was built, they wouldn’t have had a basement.” So the thought was that sometime between 1909 and when we purchased in 2020, probably in the ’50s, that they added a basement.

Tony:
That’s crazy. I wouldn’t even think that you could go back and add one retroactively. I would think that’s something you got to do at the beginning, but yeah, I learned something new today.

Dave:
You would think. You think that would be quite the undertaking. I think the house was about 750 feet upstairs, and so I’m sure that someone at some point was like, “Dude, we got to have more storage.” So, at the basement. I think one good thing to remember in a lot of basements is depending on the age that they were built, even if it was built originally with the house, they weren’t necessarily designed to be habitable. They were designed for storage, and so when going to do a basement renovation is something you got to think about, especially with moisture.

Ashley:
So, after you’ve completed this whole new foundation on the property, everything is wonderful. Great. This is your bust property. No more problems?

Dave:
Well, before we even get there, during the foundation work, the guys are there on a Sunday, and they’re excavating. The area that they’re excavating is where the water main comes into the house, and they break the main. They hit it with the excavator. So now we’ve got this trench around the house that’s filling like a moat. The water is coming at such high pressure because it’s the main into the house. It’s Sunday in the tiny town of Edgewater. We don’t know what to do. We start calling the city, the Water Department. I think we leave 15 messages. Calling Jeff. Jeff has yet to return our call. All these years later, Jeff has never been concerned about the water flowing into our house. So then, we’re like, “We got to find the water, the shutoff from the city down at the curb.”
The landscape is all overgrown. There’s so much just debris. We can’t find it. We finally find it. Then, the contractor doesn’t have the key to turn off the water. He’s got to call his wife. We don’t know what to do. At this point, we’ve called the fire department. They’re on their way, and we finally get the key, finally get it turned off as I see the fire truck pulling down the road, and I call them. I’m like, “Nevermind.” You just see them just take a turn, and they didn’t even stop. They’re just like, “Whatever.” So that flooded the basement again, but at that point, that was fine. Everything had been out of there. We’re renovating it. It’s just concrete floors at that time. So then, we think we’ve got it handled. We’re living there. This is during the period of time we’re living there. We just finished doing the drywall, just finished putting carpeting. Spring comes. We get a lot of moisture. One thing about the area of Edgewater is the water table is really high. People know this, but we thought we had accounted for it.

Ashley:
Did you have to get flood insurance on this property?

Dave:
No.

Ashley:
No? Okay.

Dave:
We’re probably a half a block out of the floodplain, but that didn’t matter.

Ashley:
Yeah.

Dave:
So then, we have flood again, so we call the foundation company, and these guys have been fantastic working with us. They come in and install an interior French drain to run to the sump pump. We think now… Again, we’ve done two things. We’ve handled it all. We move out. This last spring here in Denver was a particularly wet one. Tens of thousands of basements had moisture come into them. We were not spared from that either. So I’ve got tenants in place. Of course, the room that flooded is the room that they use as a bedroom. Ends up that with dehumidifiers and fans running all the time, we still can’t control the moisture. It just is staying wet. So, luckily, there’s a bedroom upstairs. They would stay up there. We helped cover part of their rent to make sure that they are happy and content, and then that they’re taken care of. Have the foundation company out again. This time, for free. They come in. We got to take out all the drywall and put on an interior moisture barrier now that runs into the French drain, and then bring in the drywall guy again and refinish, stretch the carpet back down. We had to replace some of the carpet. My God, I hope we’re dry. 2024, be a dry year for us.

Ashley:
The first thing that I came to mind is, “Does Colorado have some kind of service?” In New York, we have 811 where you call before you dig. Any contractor, any homeowner is supposed to call, and they’ll mark out your utilities for you so that you don’t hit them. Did you ever ask the contractor if they had done that or not?

Dave:
You know what? They’re working on a Sunday which is probably not part of what the plan was. At this point, they knew where the line was. It had been exposed, and he just nicked it with the excavator. Yeah. I still work with these guys. They’re great. They made everything right. We’re able to get it fixed, but yeah, that was an issue.

Ashley:
Yeah. I only asked because I had a contractor who didn’t call, and he was putting in a driveway and ripped up the electric line, and we had to put in all new electric. Then, when the electric turned back on, the well was dry, and we thought it was the pump. We replaced the pump, but no, the well was dry. It landed into all these other issues. So now, we’ll never ever forget to make sure the contractor has called and not trust them. I have to verify it myself to map out everything. So everything seems to be okay now after having to deal with that. All the water stories in this one property and your tenants, everything is great with them down in the basement?

Dave:
They’ve been so happy. Yep. They were super accommodating. I think that’s important too is in tenant selection, we don’t price our properties at the most expensive. We try to be a little bit below that so that we have the ability to get a robust tenant pool to choose from. We put reserves. We build reserves, six months of reserves on every property. So when these things come, we know that though those expenses are not ones that we want to deal with. I think we were probably around $10 to $12 grand probably total on the most recent repair, and that hurts, but we’re still winning. We’re still cashflowing positively every month. We’re still in a super highly appreciating neighborhood, and so it’s just the bumps in the road, but building in those safety nets had been super helpful. So it wasn’t like we came out of our own personal income to have to go and address these issues. We were able to have the property income and handle it itself.

Tony:
So, Dave, it seems like you learned a lot from this flooding issue that you had here. I guess looking back now and maybe as you focus on your future projects, are there any projects or renovation type things that you look to avoid now, or does this give you maybe more confidence to take on another potential flooding foundation issue?

Dave:
Yeah. I mean, for me, a lot of times, someone else’s problem is my opportunity because we’ve been through this, because we’ve seen this. I’m better at advising clients that are less risk-tolerant like, “Hey, let’s really be concerned about moisture. Let’s really be concerned about foundation because these can be some of the…” I always focus on what’s the highest dollar things that you got to be worried about, but no. If anything else, like would I buy a house with a cinder block basement in Edgewater again? Maybe not, but other than that, just the confidence to know that if the numbers work and you can build in those reserves, then you can handle those problems, then that could be a real opportunity that other people are not going to see as an opportunity.

Ashley:
Dave, as we wrap up here, can you give us the final number? What are you currently cashflowing off of your properties?

Dave:
So we cashflow right between $1,900 and $2,000 a month. We’ve built those reserves, and now we use those funds to help my wife leave her W2 job, and so she’s able to stay home with our kid. Also, now, when I’m not working, then we get to be together. So we’re using that cashflow now. I think we’re probably valued at about $1.7 million between the three properties and assets under management, and just steadily growing and building that life step by step as we go.

Ashley:
Dave, congratulations, and thank you so much for taking the time today to share your experience and your journey with the rookie listeners. If you want to find out more information about Dave, we will link his information in the show notes. You can also find where you can find me and Tony on social media in the show notes. So, Dave, thank you once again for joining us.

Dave:
All right. Thank you, guys. Super appreciate it.

Ashley:
If you love this episode, please give us the thumbs-up if you’re watching on YouTube or follow us on any podcast platform you’re listening on. Thank you guys so much, and we’ll see you next time.