Richard

Having an occupied property rented substantially below market price is a problem that’s afflicted many real estate investors. Every month a property is rented below market rate is lost money (or at least, the opportunity cost of lost money). Yet, jacking the rent up will likely lead to a vacancy and even more lost rent, at least in the short term. You will also likely have an angry tenant on your hands and definitely might carry the bad karma of pushing someone to move out of the home they’ve lived in, potentially for a long time.

So what should you do? 

Should you leave the rent in place? Not renew the tenant’s lease? Bring the rent immediately to market price? Somewhere in between?

Unfortunately, there is no perfect solution because much of it depends on your situation and what you are looking to accomplish. Fortunately, there are guidelines to help.

How Below-Market Rent Typically Occurs

This article will not go into how to find and set the market rent price for a property. (For that, see here.) Instead, it will focus only on what to do when a tenant is paying well below market rent.

First, however, there are typically three reasons why you will find yourself in this position. Knowing these can help you prevent yourself from getting into this position in the first place.

1. Inherited residents

Sometimes we buy properties that already have a tenant in them. This is virtually always the case with multifamily properties. Fortunately, tenants often know that when a property changes hands, the rent will likely go up (especially if the new owner makes capital improvements). This is why many are nervous when hearing a property is up for sale. But it also means most won’t be surprised when they see their rent increased.

2. Not raising rents annually

I would argue that you should always raise the rent upon renewal, even if it’s just $5 per month. You do not want your tenants to be surprised by a rent increase. Many smaller landlords find themselves with severely below market-rented properties because they refuse to raise the rent (or don’t come close to keeping up with the market). They do this often because they’re afraid of a vacancy. But it ends up costing a lot more to have a severely under-rented property. So, make sure to raise rents every year.

3. Long-term month-to-month tenants

Normally, landlords don’t allow month-to-month leases upfront. In my company, if we switch to month-to-month at the end of a lease term, we charge $100 to $250 extra per month. Still, sometimes you find yourself with a long-term tenant on a month-to-month lease. And since there is no renewal date, there’s no reminder for you to increase the rent. This has even happened to us with month-to-month tenants who have lived in the same property for three or four years, and all of a sudden, their previously above-market rent is now below-market.

Again, you can’t be afraid to lose someone by raising the rent. So, make sure to put your month-to-month tenants on an annual rent increase schedule, just like with annual leases. Setting up a reminder in any property management software shouldn’t be hard. 

Why This is So Important

In the current economy, I would contend a fourth reason has entered the fray: It is very hard to keep up with this scorching hot market.

It used to just be when we inherited a resident who lived in a property before we purchased it or an old month-to-month lease that fell between the cracks. But now, it feels like just about everything we lease is below-market rent. And I can say confidently that it isn’t just us who feel this way.

Nationwide, rents haven’t shot up as much as real estate prices, but they have still gone through the roof. A recent Realtor.com report found the median asking rent for properties on the market has gone up 16.7% year-over-year, substantially more than wage growth and even more than inflation in a very high inflation year.

This, of course, varies by the city and state, with some seeing even higher rates of rent growth. A recent Rent.com report finds even faster rent growth, with some metro areas having truly obscene year-over-year rent increases. From their analysis, for example, Newport, Virginia, and Greensboro, North Carolina, had increases of 74.2% and 60.7%!

Yet these rather shocking statistics are a bit misleading. The issue is that they are only comparing new rental listings with those from last year. As NPR notes,

“Government consumer price data show that the average rent Americans actually pay—not just the change in price for new listings—rose 4.8% over the past year, which is a higher than usual rate of increase.”

So, if rents went up almost 17% last year, but the average tenant only paid just shy of 5% more for rent, then that would infer there are a lot of occupied properties with tenants paying below market rent these days.

Below-market rented properties are an endemic problem for landlords right now.

Understanding Tenant Psychology

Tenants are not surprised to see rent increases. Unfortunately, they are surprised (and quite upset) to see really large ones. Indeed, we’re starting to see more and more pieces in the media about the outrage of large rent hikes. 

We have even heard prospects tell us they didn’t renew their lease simply because the increase was too high despite the fact it was actually less than we were charging. Investor G. Brian Davis makes a similar point based on his experience,

“A good rule of thumb: don’t raise the rent by more than 5% per year. Any more and the sharp rent increase often jolts the tenant into moving—even if you’re raising the rent no higher than nearby market rates.”

Of course, this is assuming the property was rented at market rates beforehand.

Still, Brian’s thoughts fit with a survey of 1166 renters Buildium did a few years back. As they found,

“Most tenants will only tolerate a rent increase of 1-5% every 1-3 years, while nearly one-third feel a rent increase is never reasonable.”

Even back then, a raise of 1-5% every 1-3 years wouldn’t come close to keeping up with inflation. The average tenant (like everyone else) isn’t always the most realistic. 

But still, it’s important to understand that people don’t like big changes, especially negative ones. And in negotiations, if someone feels insulted, they will often refuse to do a deal even if it makes sense. While I don’t recommend negotiating lease terms with your tenants, even a simple “take it or leave it” request is a negotiation. And increasing the rent to market price in this rental market can come off as insulting.

How to Decide

Ethical considerations

So, what should you do? 

First and foremost, some people feel guilty about raising the rent to market rates, especially if it’s a long-term tenant who is paying substantially under market. And even more so if raising the rent to market will likely require them to move.

The most important thing to internalize here is that there is nothing immoral about charging the market rate. It may be jarring to some tenants, and they may even get mad at you. But you could simply turn it around and note that they have been living in that home at a discount for some time. Of course, the discounted rent was what had been agreed to, so they were not doing anything immoral either.

Thereby, I would lean toward seeing this as simply a business decision. That being said, if you are in a good and comfortable spot and can afford to charge your tenant less than market and feel that would benefit them more than the extra money would benefit you, then go ahead and charge less.

Just see it as an act of charity and not a business decision. But also, understand it is an act of charity you won’t get any credit for.

Financial considerations

According to RealPage.com, on average, 57% of tenants renew their lease each year, up substantially from 2010.

That means, in normal times, you have a greater than one-third chance of having a vacancy each year. 

Now, I think you can do better than that by offering a good property with quality maintenance. Indeed, our average stay is about four years, and Jeffrey Taylor (Mr. Landlord) has boasted of getting to six years with his unique property management ideas. 

But there are good ways and bad ways of getting low vacancy. And keeping your rents really low is a bad way.

For example, let’s say Bob and Fred both lease identical properties at $1000/month. Bob increases his rent by only 1% each year while Fred increases it by 5%. Bob has no vacancies (best case scenario), whereas Fred has a move out every third year, and the vacancy lasts two months, and he incurs $1000 in turnover expenses above what the deposit covers. (We won’t count maintenance or capital improvements as we’ll assume they are the same.)  

Here is what the ledger would look like:

Despite the extra vacancy, Fred still does better by over 10% and brings home about $15,000 more. 

So, in general, with all things being equal, it makes sense to increase the rent to market. This is especially true with apartments as the value of an apartment is directly related to its income, unlike with a house or even a duplex. This is because the value of an apartment is based on its cap rate, which is determined by taking the net operating income and dividing it by the purchase price.

A lower rent means a lower net operating income which means a lower price.

However, there are times when it’s not wise to push rents to market. Everything depends on your situation, as I noted above.

For example, if you have a glut of rehabs or turnovers right now, you should be more conservative with rent increases. This issue has haunted us at times as we are constantly growing. In such times, we know extra turnovers will cause additional holding costs as we don’t have the resources to start more new projects. 

So, if we get excess turnovers, we may have to leave properties empty for a month or more before work can start on them. By looking at our business holistically, we see that while it may make sense to increase the rent to market for that property by itself, it doesn’t make sense for our business.

Another possibility would be if the property is not in particularly good condition. Perhaps it’s being rented below market because, in part, it’s not in marketable condition. In this case, the two options you have are:

1. Increase the rent to market for its condition (i.e., from $500 to $750/month instead of a market rate of $1000).
2. Give the tenant notice to vacate. This is tough but often the best choice. If you want to be kind, you can offer to pay for some of their moving expenses. (Or you may have to—see the next section.)

Lastly, you may decide to move the tenant to market incrementally over several years. For example, if they are at $600 and market price is $1000, go up to $750 next year, then $900, then to market. 

This is tempting and can make sense sometimes. But I would recommend against doing it simply because it feels better than increasing the rent straight to market. If you do it incrementally, it should be because it’s the most economically rational thing to do.

In general, however, the rule of thumb is that you should lean on the side of raising the rent to its market level as quickly as possible.

However, this particular rental market may be an exception. Rents are going up at an unsustainable rate. You can get a substantial rent increase and likely do so without a vacancy, even without going all the way to market levels. In this abnormal market, it probably makes sense to have your rent increases be a bit under market. (Maybe 10% instead of the national average of 16%, for example.) Rent increases will inevitably slow, and you should be able to catch up soon. And this way, it’s less likely to offend your tenant and have an unnecessary vacancy.

Legal considerations

Lastly, it’s important to understand that some cities and states restrict how much a landlord can charge in rent or increase the rent per year. For example, in New York City, some apartments have rent control. And in Oregon, they passed a law restricting rent increases to “7% plus inflation annually.” In addition, if landlords give a “no fault” eviction notice, it must be served 90 days in advance, and the landlord must pay a relocation assistance fee (one month’s rent). 

So, make sure to check your local and state laws and act accordingly.

How to Actually Raise the Rent

One of the most important things to understand in business is that people get more upset about their expectations not being met than bad things happening. This is why it’s so important to set expectations right from the get-go. You should tell people during their lease signing that rent will likely go up each year. It’s not a bad idea to say a similar thing to the residents after you buy a property with inherited tenants too.

When you do send a rental notice (usually 60-days before their lease ends), I would do so in writing and not over the phone. It’s probably wise to both mail and email the notice. The notice should be respectful and professional and include a brief explanation if it’s more than a 1-3% increase. For example, “inflation has increased substantially” or “the property has not seen a rental increase in four years.” Say “property,” not their names. Otherwise, it sounds like you’re accusing them of mooching or something like that. 

This will allow them a chance to cool off if they get mad about it and also not commit themselves to moving if their first response is anger. (It’s also important to have everything in writing.) If they do call angry, stay calm (people will mirror the tone of voice of the person they’re talking to) and explain the reasons for the increase. Like with the letter, I would try to keep the explanation short and to the point.

An example letter can be found here. 

Conclusion

Generally, it’s important to keep up with rent increases to avoid finding yourself in this situation. But particularly in this market, you will find yourself with a below-market rented property from time to time. The key is treating the tenant fairly but approaching this as a business decision. Because in the end, that’s what this is, business. 

Run Your Numbers Like a Pro!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

As the Federal Reserve is expected to raise its benchmark interest rate by 0.75 percent, George Ratiu, senior economist for realtor.com, joins ‘The Exchange’ to break down how it’s impacting the housing market.

Ashley:
This is Real Estate Rookie, episode 219.

Hunter:
I would say, if you haven’t already, go right down your why. For me, it’s my family and my freedom. And when things get tough, when things get stressful and overwhelming, because they definitely will, especially… Probably early on. Being able to lean back, and really know your why and why you’re doing everything and putting yourself through these overwhelming or stressful situations will help you push on.

Ashley:
My name is Ashley Kerr, and I am here with my co-host, Tony Robinson.

Tony:
And it should be episode 209er teen, that’s the right number.

Ashley:
It should be episode 219er, I think, actually.

Tony:
219er. Okay. There you go. That’s probably where I would say it. But either way, welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the inspiration, information and motivation you need to kickstart your real estate investing journey. And I love, love, love to get in front of this mic every single time because we get to share some good stuff with you guys. Ash, let’s get into our boring banter for today. What’s new? What’s going on?

Ashley:
Well, I’m just headed to Idaho tomorrow. Going to Cour d’Alene, to meet up with some real estate friends. So, I’m excited about that. I haven’t packed or prepared or done anything yet. I actually just changed my flight. So, I actually leave 12 hours later, so that I have more time to get ready.

Tony:
That’s hard but… Get your life in order?

Ashley:
Yeah, yeah. So, but that’s about it for me. And just looking forward to the summer, it’s finally getting really nice here in Buffalo. And we had a boat day yesterday. So, yeah. What about you?

Tony:
Yeah, it was good. Wait for the crew on boat day. So, Ash and I were supposed to record yesterday, and she texted me. She was like, Hey, anywhere we can move that so I can get on the boat instead? I was like, Yeah, of course. We’ll make it happen. But…

Ashley:
Tony, there will be one time where we do a short rookie reply where I will be on the boat and recording from there.

Tony:
On the boat? I would love that.

Ashley:
That will happen.

Tony:
I would love that. We’ve got to make that happen. As long as I’m on the boat with you.

Ashley:
Yeah. There we go.

Tony:
I’ve got to make a trip out to Buffalo at some point this…

Ashley:
Yeah.

Tony:
But now, things are good on my side too. You know what? I actually just had my first reel on Instagram pass a million views. So, that was cool.

Ashley:
Oh, whoa! That’s awesome. Congratulations.

Tony:
And it’s always the bad stuff that goes viral on social. It was a video about these… They were actual crack heads that booked our place. There was actual drugs found left at the property, and they trash the place. But anyway, we had a video that showed about what the property looked like. And I guess people love hearing about the bad stuff happening at Airbnb.

Ashley:
They like hearing bad stuff happen to other people.

Tony:
Yeah. Not when I talk about how to analyze a property or the motivating stuff. It’s like, crack heads destroying an Airbnb, goes viral.

Ashley:
Yeah, yeah, yeah, yeah. Well, that’s really cool. What video I thought you were going to say is, the one about the bear coming onto your property, where there’s the garbage all over the porch and it got into the dustbin.

Tony:
That one also went viral, but that was viral on TikTok.

Ashley:
Oh.

Tony:
That one has almost three million views right now. So, this is our first one that hit a million on Instagram.

Ashley:
Yeah. Yeah.

Tony:
So, if you guys want to hear more about bears digging into our garbage and crack heads destroying our places, then follow me on Instagram @TonyJRobinson. If you want to see more about boat days in Buffalo, follow Ashley @WolffromRentals, and you’ll get a good mix of everything.

Ashley:
My content is so sporadic. It’s like, Okay. Today, I took a boating reel and I turned it into why you should get life insurance on your business partner.

Tony:
Because you never know what could happen on the boat really.

Ashley:
Yeah. I got dumped off the boat, just laughed off the back. And I was like, This is one of the risk you take when you get life insurance on your business partners. Near death experience is always around the corner. So, they can take over the business. But then I just added into my description about what is getting life insurance on your business partner? Why it’s important? So, you guys can check that out on my Instagram page, if you want @wealthfromrentals.
But today, we are bringing on Hunter, who just got started in real estate. I think the coolest thing about this episode is he talks about how he took advantage of a college opportunity that you just signed up for. And he got paired with a mentor who ended up being such an awesome tool and motivator for him to actually get into real estate and investing himself.

Tony:
Also, one of my favorite parts of this episode was the mindset segment, we brought that back for this episode. And Hunter’s response to that was just really… I think it’ll be really eyeopening for a lot of our listeners today. So, make sure you guys take a listen for that as well. But overall, he had a… Not a setback, but he had an obstacle he had to overcome in college, where he had a kid right before he graduated. And I can obviously relate to that situation as well. And he talks about how that framed and shaped his approach moving forward. So overall, just really good episode. Hunter’s a great guy who shares a lot of really good information. So, excited to share the story with you guys today.

Ashley:
Hunter, welcome to the show. Thank you so much for joining us. Do you want to get started with telling us a little bit about yourself and how you got started in real estate?

Hunter:
Yeah. So, I’m Hunter Lewis, 25 year old investor from Southeastern, PA. Currently have three doors and I’m in a process of selling my second one to 1031 exchange into a small multi-family property. So, three doors, working on number four. My journey started, my sophomore year at Penn State Altuna. Similar to how’d investors started with me, reading Rich Dad Poor Dad, that’s what lit the flame inside of me. One year later, junior year, met my girlfriend, Emily. And then, two weeks before my senior year, found out that Emily was pregnant. So, life threw me a curve ball, slapped me in the face and forced me to get serious.
April of 2019, we had my daughter. And real quick, this is actually a funny story. So, Emily and I were living in two separate college apartments at the time, obviously not ideal for a newborn. So, we had the rent an Airbnb for the month of April, leading up to me graduating at the beginning of May. So, first month as a father, I’ve been at Airbnb, which is funny. July of 2019, couple of months later started my career with Sheets, as an associate real estate sites right there. So, doing commercial real estate work for them. And then fast forward almost exactly a year later, is when I closed on my first single family rental. Six months later, closed on my second in January of 2021. And then closed on my third in August of 2021.

Ashley:
Hunter, what made you take that position at Sheets? And Sheets is a gas station, right? A big brand, like a Bucky’s or something. Not as great as a Bucky’s, I’ll say that, but like a-

Tony:
The heck is a Bucky’s?

Ashley:
A big convenient store.

Hunter:
I’ve never heard of that.

Ashley:
A Bucky’s is down in Texas, and I think they’re along the Southeast. So, it’s the best gas station you’ll ever go to in your life. But-

Tony:
My favorite gas station is Costco, guys.

Hunter:
[foreign language 00:06:57].

Ashley:
So, what got you to that position? Because you mentioned real estate as part of your job description. Can you maybe elaborate on that more?

Hunter:
Yeah. So, after reading Rich Dad Poor Dad out my sophomore year, I knew real estate is everything I wanted to do in the path I wanted to go down. So, pretty much just was trying to connect with people and put myself in a position to come out of school, hopefully with a job that was real estate related. Going in the senior year, find out Emily was pregnant, before that, didn’t really… Wasn’t really taking life too seriously, didn’t really have any set plans of what I wanted to do. Then that happened, and that forced me to get serious. And actually had Steve Sheets, who’s one of the brothers who founded and helped start and grow the Sheets company and brand, as my mentor in my senior year. And he hooked me up with the internal real estate department, and that’s how I got my foot in the door and started with them coming out of the Penn State.

Ashley:
Here’s the question we always want to know is, how did you find your mentor?

Hunter:
So, actually it was pretty easy from the student perspective. We just filled out a form of what we were looking for in a mentor, and then the administration paired us based off what we answered. So, I didn’t really have to do too much to the legwork.

Ashley:
But you took advantage of an opportunity to pair with a mentor. So, I think-

Hunter:
Yep.

Ashley:
… Yeah. So, if you are in college and that is an opportunity that you have available to you, definitely take that resource that’s offered to you.

Hunter:
And I guess off that speaking to being open and telling everyone and everybody about you wanting to be involved and get into real estate because that’s how I got paired with the mentor that was able to provide me and open up the doors for me to get into that position in the real estate department.

Tony:
Hunter, one follow up on the mentorship piece because obviously, a lot of new investors, especially those of us that are younger in life, I think long for that quote-on-quote mentor, but that relationship looks different from person to person and mentor and mentee. So, what exactly did that relationship look like for you guys? Were you meeting every week? Was it every couple of months? And how long were the conversations? What kind of challenges and things were you bringing to that person? Just give us some insights on how that relationship looked.

Hunter:
Yes. We tried to meet once a week, if not every other week. And really, it was… At first, really just starting to build a personal relationship with him and build that friendly, open conversation with him before I really started to dig in and ask business related or professional questions to help me advance in my career. So, I think send the groundwork of building a personal relationship first and then digging into the professional and business related questions was useful.

Tony:
I think it’s pretty cool that you guys met on a weekly basis. Most folks that I know that have mentors, it’s as far less frequent than that. So… And this was someone that seems like has found a lot of success on their own, then those people are typically the busiest. So, looks like you might have shred gold, Hunter, with your mentor.

Hunter:
I did. I did. Steve is an amazing guy, super down to earth and, yeah, he’s incredible with being able to build personal relationships and maintain them with how busy he is. One cool experience that actually got to do with him that sticks out. He was on Gary V’s podcast. So, he invited me along and I got to fly up there with him and sit in on him doing a podcast with Gary V. So, just being able to sit in with him and be exposed to experiences like that, it was… It was just insane.

Ashley:
That is so cool. And I think that’s probably something that when you have scaled and you have grown as an investor yourself, that you’re going to pay it forward and provide somebody else that opportunity. I know the investor that I’ve worked for, he let me sit at the closing table before. And he had me as a signer on the bank account form, he was doing this huge acquisition and I sat there at the closing table and I was the one that wrote these huge checks, signed my name on it. And it was just such a cool experience for me because it really just showed me the whole process of how he worked as an investor. And just me, getting to actually write those physical checks means such an impact on me because I had never even seen close to that amount of money before. So, it definitely would… It would be cool for me to be able to do that for somebody… Someday for somebody is, to bring them on along with me and let them experience what I do day to day for sure.

Hunter:
Yeah, definitely. And I think just getting exposure to as much as possible starting out before you jump in yourself is so beneficial in so many ways.

Ashley:
So, when you did decide to take the leap and to get your first deal, what made you decide, Okay. Now is the time.? Did you have a lot of analysis paralysis? Was there some kind of hesitation? Or were you like, Today’s the day I’m going to go buy a deal.?

Hunter:
I knew I wanted to jump in as soon as possible. Coming out of school, I had very little money in my back account. So, I took my first year working with Sheets to save up and cut expenses as much as possible. And quite honestly, COVID played into advantage because we packed up and moved… Or not moved, but came back home to stay with my parents during that time. So, I was able to cut back on expenses. And finally, was just ready to pull the trigger. So, I just started taking action. I stopped holding myself back and I just went online, went to citizensbank.com and figured out how to get pre-approved. And the snowball started rolling from there.

Tony:
Can we talk a little bit more about the snowball? Because I think that’s also the thing that a lot of new investors, where they get stuck is, maybe they can wrap their head around getting property number one, but the idea of doing properties number two and three, especially in a short period of time is where they get stuck. So, just to reiterate the timeline for folks. You got property number one in July of 2020. And then about six months later, you get property number two. And then about seven months later in August, you get property number three, right? So, you saved up the money for property number one, COVID, moving in with your folks. But what about property number two and number three, how did you fund and finance those ones?

Hunter:
Yeah. So, property… Once… Finally got in with my first one, that was proof of concept and proved to myself along with my close family friends that I actually could do this. Six months later, I finally convinced my dad. I said, Hey dad, listen, this is what I gotten out to. And he was pretty involved in the process to buying the first one. I show him the numbers. I show him what I planned on renting that one out and how much I wanted the cash flow on that one. And convinced him to put up the down payment and closing costs for the second property. So, I partnered up with my dad on the second one, we put 20% down and he actually exercised 25 grand of his employee stock for the down payment and closing costs. And that’s how I financed that second one.

Tony:
Something I want to point out is that you said on that first deal, that was proof of concept to yourself, your friends and your family. And I love that you phrase it that way because that’s exactly what it was for us in our business as well. When we started, we knocked out four short term rentals in the span of, I don’t know, six months maybe. And as those property started to perform, that was proof of concept to us and other people in our circle that the short term rentals are a good asset class and that we know how to set them up, manage them and run them on a daily basis. And as you start to communicate what you’re doing in the world of real estate investing, you’re going to start gaining interest from other people who you may not have even known were involved in real estate.
So for you, Hunter, was your dad. But for the rookies that are listening, maybe it’s the person that you, I don’t know, you do yoga with on Tuesday mornings or maybe it’s the person that you… When you’re at the daycare and you guys sitting there watching your kids play, maybe it’s that person. You never know who in your circle already has an idea of investing in real estate, but they don’t have the time desire or ability to do it themselves. And if you can show proof of concept, now you’ve opened yourself up to potential partners to help you continue to scale.

Ashley:
So Hunter, what would be your advice for somebody who is just starting out and maybe in a similar situation to you, where they have these resources at their work or have a mentor? What are some tips and advice you can say is, what are the things they should really focus on and maximizing having these advantages to them? For example, is it the network of that other investor that’s mentoring you or that you get from your job? When I first started out, I built a really great relationship with a loan officer as doing loans for this investor. And so, when it was time for me to do a loan, we had a great relationship and he knew I was responsive. And so, it went really smooth, getting them to give me a loan because of that. So is, there any advice or things that you took away for from the opportunity you had with your mentor and your job?

Hunter:
Yeah. And I would also shout out to my real estate agent that I found for that first deal. She was really crucial in… You touched on the network. So, digging into the network and the relationship she has already created and whether or not I was going to have access to them was a big thing. The lender, she had a contact at Citizens Bank, who I was already getting pre-approved with as she hooked me up with. We used her closing company, she… We used her inspector. All these people that are really crucial and big time players and purchasing a property, they either can make your life really easier or really hard. And fortunately, she had that network and those people there, they made my life a lot easier buying that first property.

Ashley:
So, when we move on to our next segment, we’re going to go into an actual deep dive of your deal. But before we do that, I want to talk about… So, you mentioned before that you had a child very young. So, what… Is that part of your why? What has driven you to keep going and to build and scale this portfolio?

Hunter:
Definitely. Yeah, definitely. Having Teagan at, I think I had just turned 22. Emily was 20. Had no money coming out of school and being the man in the family, I obviously had to put the team on my back and away with Emily still having two years left at school. So, I knew, financially, it’s going to be on me for some quite time. So, that was letting me understand that this is now much bigger than me. And it’s up to me to provide for my family, that… That’s definitely driven me in many ways.

Tony:
We talked about this on another episode as well. It was someone that we just recently interviewed. I’ll have to try and go back and figure out who it was, maybe we can throw it in the show notes. But they talked about how a lot of people use their family as an excuse instead of as motivation to really bust their butt and do the work that needs to be done. And I’ve shown them the podcast many times. I was 16 years old, my son was born. I was a junior, just started my junior of high school. And there are a lot of folks who are in similar situations that use the fact they had kids young as an excuse as to why they can’t achieve great things instead of a motivation to achieve those great things.
So, for all of you that are listening, there may be things… Maybe you didn’t have a kid as a teenager in your early 20s, but maybe there’s something else in your life that you feel is an excuse, that’s holding you back from really going forward as a real estate investor. But I challenge you to think of ways to reframe that obstacle as a motivating factor as opposed to an obstacle for you. So, really appreciate you sharing your story Hunter, because I’m sure it’ll inspire some of the folks that are listening right now.

Ashley:
And another thing we like to talk about too, is we find us all bring this up is, what about… How was Emily on board with you getting started into real estate investing?

Hunter:
She’s been great. She really has. She’s never once really even questioned me. She’s always just been in open ear and ready to jump along for the ride. And actually for the third deal, we split the down payment and closing cost for that one. So, she… We technically, I guess, are partnered up on that third property. So, she was definitely a big role and a lot of help throughout this journey so far.

Ashley:
That’s awesome. That’s really cool to hear because I think that’s sometimes a struggle for people is, getting your significant other or even just somebody on board with you to do it together. So, that’s awesome that you’ve had that support and that definitely helps a lot. Do you have any advice for somebody that is maybe trying to get their significant other on board?

Hunter:
Just give them Rich Dad Poor Dad.

Ashley:
Yeah.

Hunter:
That was the book that lit the flame in me. And I gave it to her. That was actually after I bought the first one and was really pushing to continue the scale and grow. She read that one and I think she was like, Wow! She’s completely on board after that.

Tony:
Yeah. We always say Rich Dad Poor Dad is the gateway drug for real estate investing, right? It’s like you read that first and then it… Or the gateway drug or maybe it’s like the matrix, right? It’s like the red pill or the blue pill. It’s like, when you finally take the right pill, opens your eyes up to what’s really going on.

Hunter:
Yep.

Tony:
But I want to go back to the partnership speaks hunter, because you said you took the on the first one on your own, you saved up some money from your job, moving in with your parents. Now, the second one, you got your parents involved. And the last one it was with you and Emily. So, can you talk us through how you structured those partnerships? So maybe first, with your dad. What did the structure of that partnership look like?

Hunter:
Yeah. So, being that… It’s been close family members so far, I haven’t got anything too crazy. So, neither or none of the properties are in LLCs. With my dad’s, just a written agreement that we are going to split equity. So, we bought the house for $80,000. And not to get too deep into this one yet, but we bought it for $80,000 with 20% down as a $16,000 down payment. So, the equity split is 50-50 after the $16,000. So, whatever the equity is, minus 16,000 and then divide that, 50-50 would be the split. And then we just split cash flow 50-50. But this early on in my investing journey, I have not been spending any of the cash flow. I’ve just been letting it all accumulate in these separate bank accounts per property, trying to keep my eye on the prize of saving up and continuing to reinvest in the business.

Tony:
So, what you described hunter as a capital recapture. So on the equity piece, and we’ve done this in some of our partnerships as well, is that whatever equity is available, before we split that, the person that put up the initial capital has to get repaid first. So in your situation, it was a $16,000 down payment that your dad put up. And say, you guys go to sell that property or refinance or any kind of capital event that 16,000 would get paid back to your dad first. And say, there’s like, whatever, $10,000 left over, then your dad would get an additional five, you would get an additional five. And that’s a really common, I think, lever to pull inside of partnerships to try and keep things balanced. Now, here’s what I will say, right? Because I know I get this question a lot. Ashley, I’m sure you get this question a lot as well, is like, Tony, Ashley, what is the best way to structure a real estate partnership?
And I will tell you, Ashley will tell you there was no one size fits all solution for any partnership, it’s all going to depend on the unique desires, wants, abilities, time availabilities of each one of those partners. At the end of the day, the only thing that matters is that A: You’re not breaking any laws and B: That both partners are happy. As long as you can check those two boxes, you can structure the partnership however you want to. If you want to say that partner A has to give partner B a lavish birthday gift every year as part of this partnership agreement, then you can do that, right? There is no right or wrong answer for structuring a partnership.

Ashley:
Let’s go… I would like to go into just break down a deal for you, Hunter, and see how you made a deal happen. Is there one in particular that you’d like to go over?

Hunter:
Sure. Yeah, we can go over the second one with my dad.

Ashley:
Yeah. Cool. So, I’m just going to do some rapid fire questions and then if you just want to spitball them, and then we can go through just the whole story of it.

Hunter:
Cool.

Ashley:
So, where is this property located?

Hunter:
Altoona, Pennsylvania.

Ashley:
Okay. And what is the strategy you’re doing with it?

Hunter:
Well, originally, was a long term hold rental property. But with the crazy appreciation we’ve seen over the last couple years, I’m currently listing it on the market to try the 1031 exchange into a small multi-family.

Ashley:
Okay. Cool. Yeah. We’ll definitely have to talk more about that. And what is the purchase price of the property?

Hunter:
$80,000.

Ashley:
Okay. And did you put any rehab into it and how much was that?

Hunter:
New carpet and some paint. So, very minimal. Probably like $1500 all in.

Ashley:
Okay. And how did you finance the property?

Hunter:
So, me and my dad partnered up. He put up the down payment and closing costs, which all in was about $23,000 with 20% down. So, we just used a local mortgage lender in the area.

Ashley:
And how did you find the deal?

Hunter:
With my agent on the MLS.

Ashley:
Okay. Cool. Yeah, if you just want to go into that story and maybe just start off as to maybe how your agent sent it to you and then go from there.

Hunter:
Yeah. So, finally got my dad on board and he was coming up to Altoona because my hometown’s about three and a half hours away from there. So, he was coming up. We were actually going to put some new flooring in the first property that I had bought. And I knew he was already on board. So, I had scheduled with my agent four or five houses that weekend that we were going to go tour.

Tony:
Wait, did your dad know or is this a surprise? You’re like, Hey dad, I knew you’re here for this, but let’s go check this other thing up.

Hunter:
I threw him a ball. I didn’t give him all the details until he showed up. I wanted to see his reaction. So, he showed up. And yeah, we got the floor done. I told him, I said, Hey, before you leave, we got to go look at some houses first. And I think he was like, Oh crap! He was being serious about this. So, he went and looked at him and I think it was the last house of the day we actually went and looked at. And I could just tell walking through it, my dad liked it, I liked it. And it was in a good area near the Penn State Altoona campus. And I said, This is the one we’re going to pull the trigger on. So, I think the end of the weekend, I ended up driving back home with my dad and we put in an offer. And on the way back, we had already heard back that they accepted. So, they had already did two price cuts. So, we came in at $80,000 and they accepted our offer right away.

Tony:
Can I ask one follow up question, Hunter? So, for a lot of new investors, when they see multiple price reductions, they get scared. Because I think the initial response is, Oh, there must be something wrong with this property because it’s been sitting, no one’s made an offer. And now, the sellers are getting desperate. Did you have any of those thoughts as were looking at this property? And if so, how were you able to push past those?

Hunter:
Yeah, it was always a yellow flag. I never want to look at that as a red flag. Just proceed with caution and try to figure out what might people be shying away from this house for? There was a couple issues that looked like they used to have a little bit of water in the basement. They dry locked the walls and installed some French drains around the house. And we haven’t had any issues since. So, just proceeding with caution and trying to figure out what may be deterring other people and trying to solve those problems. And if the deals still makes sense, I would still push forward. And that’s what we did.

Tony:
Ashley, what about you? How do you feel about looking for price reductions in your market?

Ashley:
Well, actually my flip right now is in a price reduction. So, if anyone wants to buy my flip in Seattle, we have reduced the price. Yeah. So, when I see a price reduction, I… Price reduction and if it’s sat on the market for a long time. But this was three months ago and for the past year before that, during that timing period. But a house wasn’t selling within a week, especially two weeks, and then they reduced the price. It was an automatic, Okay, there’s something wrong with that. But those are the houses to go after because it might not even be anything wrong with that or maybe it fell out of contract because it was something with the buyer where they couldn’t get financing, things like that. So, I think those are definitely great opportunities looking for properties with price reduction, especially if it’s like every two weeks are dropping the price. And that usually shows that they have some kind of reasoning that they want to get out of it, they’re motivated sellers. So yeah, I think that’s a great thing to look for.

Tony:
Yeah. My thoughts on the price production are that it could just be that they overpriced the property to begin with, right? It doesn’t even necessarily mean that something’s wrong with their property. It just means that the sellers were asking for more than what it was worth. And I love seeing price reductions, especially on a property that I offered on before that they rejected the offer. Because now, I can go back and say, Hey, you just reduced the price. Can we get a little bit closer? And we’ve actually closed up deals that way.
And for me, as long… Any property that we buy, we’re going to do an inspection on. I’m typically going to have my crew walk it during escrow to make sure that it fits within our rehab budget. And as long as I can do those two things, I’m going to uncover most of what I need to uncover, so that I’m still protecting myself as a buyer. So, I know a lot of you listening right now, maybe you’re shying away from the price reductions. But if the numbers still make sense, like Hunter said and you know that the deal will still be cash flow positive, then don’t be afraid to pull the trigger, right? The only caveat is if you’re in a flood zone in Shreveport, Louisiana, then do not buy the deal because there’s a good chance you might end up losing money on it. So…

Ashley:
I think there’s actually going to be quite a few price reductions for property. Especially now, where maybe people listed a month ago as interest rates spiked up and now they’re not getting what… So, if you purchase a property and flipped it like I did, and we listed it probably a $100,000 dollars less than what we had thought as we were going into the flip because the market was already changing. And then we had to do one price reduction since then. So, I think there’s definitely going to be a lot of price reductions, especially for people who thought the market wasn’t going to come down at all and priced it super high because three months ago, that’s what you could get. And now, they’re going to have to try and keep up because just the amount of people that can afford houses now have decreased. Because with the interest rates, their monthly payment for a mortgage is going to drastically change than if they got the mortgage at 3% compared to 6%. So, I think you might see a lot of price reductions now from people that have maybe listed their property a month ago.

Tony:
Cool. Sorry, I didn’t mean to take us down that, that rabbit hole there. But hopefully… Hopefully, it’s good information, man. But I just thought it was a really interesting point you made. So yeah, I just wanted to touch on that.

Ashley:
So, what else happened with the property? We are doing the deal dive, yes. So, what else happened with the property? So, you purchased it, you’re going through rehab.

Hunter:
Yeah. So, this comes back to having a really good agent, especially in your early days. She already had tenants lined up. So, we put in the new carpet. And within six days after closing, we had the tenants in there, and we’re already starting to collect rent. So… And that was my first… My first time in my dad’s first time being an actual landlord. The first property, I was still living at the time as an owner occupant. So, that was… Having those tenants already lined up from the agent, that was crucial in getting my dad over the hump and giving him the confidence to pull the trigger. So, they were pretty good tenants, that’s the first couple months. For my first couple months of being a landlord and figuring out how to compromise if you will, on certain things. And then we rented it out for another year and a half up until this past May actually.
And he was a Marine, our one tenant, and he got new orders to move somewhere else. So on short notice, he was out. And I asked my agent, I said, Hey, What do you think we could get for this property now? And she said, Probably between $130 and $150. And that was a lot more than I was expecting, especially after a year and a half. So, I was like, Holy crap! Let me go talk to my dad and see what do we want to do? And so, we decided to go the route of listing it. So, it’s currently on the market. And speaking of price reductions, full disclosure, it’s been on the market for, I think 12 days now. The first 10 days, we left it at $140. And we actually had to reduce the price to $130. So, we went a little bit higher, not anticipating the previous market flows over the last month with interest rate hikes.

Ashley:
Yeah. And that’s hard to do when the market has changed so drastically, so quickly too. Is that you’re looking at comps that sold two weeks ago, a month ago, and they’re not even relevant anymore because the people that bought that, got maybe 3.5% interest or 4%. And now, it’s just getting close to double.

Hunter:
I think since those comps that we were using, it’s been, I think one and a half points higher already. And it’s a completely different market once you start making jumps like that.

Ashley:
And you always get that thing going in the back of your mind, like, Oh geez! If I would just of got that rehab done a month earlier.

Hunter:
Right. Right.

Ashley:
They had [inaudible 00:32:19].

Tony:
Totally. Totally.

Hunter:
Yeah. I think, the wait an extra week for the carpet, and I was like, Yeah. If only we could’ve got them in a week earlier.

Ashley:
But I think that’s just like… It’s good to go through that process. And it makes you check yourself because if we both would’ve listed our properties at the top of the market and made tons of money, it’s like, Oh, okay. Here’s the excitement momentum. And then we go and do the next one. And it’s like, Whoa! The market has drastically changed, we… So, I think it’s almost good to… I’m trying to be optimistic here. Obviously, it would be way better to sell a lot more, but lesson learned that you have to watch the market. And just because you start flipping a property at month one by month six, it doesn’t mean that the property is going to sell for whatever you analyze it at month one. So, just a lesson learned. Especially when we’re going through interest rate hikes right now is, if you are flipping, be aware of what could be happening down the road too.

Tony:
Can we talk a little bit about the property management piece, Hunter? You touched on it a little bit, but you said this is your first time managing a property, your dad’s first time managing a property. A: What made you guys decide to self-manage versus hiring it out? And B: What were some of maybe the tough lessons you learned along the way that you can share with the listeners?

Hunter:
Self-manage, the reason I went there about to start off is I wanted to get the experience under my belt of being a landlord so I could somewhat understand it. And quite honestly, shout out to you guys. I got the Rent Ready code for a dollar by using the bigger package code about-

Ashley:
We love Rent Ready.

Hunter:
… Whenever that time was. So, that’s the system I use. So, I got that set up and was all in using that. And I thought it was really simple and easy to use that, to help screen the tenants and get them in there. So, it’s been successful using that so far.

Ashley:
That’s good. And are you solely doing the management or is your dad doing part of it too? Both of you or…

Hunter:
So mostly, me. I fill him in on things, but I’m the one that’s completely hands on. And the point, man, for all the communication, just another way we structured that partnership. So, it’s… Yeah, it’s been me dealing with the tenants one on. Some issues I’ve had, I’ve just trying to find a compromise. They wanted to put a security door on and I just instead bought them a simply safe security system. Because I knew that would benefit me as well as benefiting them. So, just trying to continue to solve the problems that real estate will throw you and just compromise with tenants to create that win-win.

Ashley:
That’s such a great advice. And we had had a guest on for property management, Karen, who talked about that too, is where do you draw that fine line of pleasing the tenants but also making it for the property owner feasible. And I think right there, was just a great example of, Okay. They wanted this, which… That the security door is expensive, but let’s find something that will actually be long term beneficial to both of you and provide a little bit more value than just replacing a door too.

Tony:
Can we continue on the property management piece before we jump out? Are you… I know you’re managing… You have multiple properties now. So, are you self managing all of them? And then are they all in your backyard or are some of them a little bit further away? And if so, how are you managing remotely?

Hunter:
Yeah. So, the third property we bought was in Southeastern, PA. So, the first two are still up in Altoona. So, I have some experience of having to self-manage from being three and a half hours away, still using Rent Ready for both of them and still using that same agent to rely on her and her network. So, I’m actually just signed a rental agreement with her yesterday to start tenant screening for property number one because I’m having some tenant turnover. So, just ties back into building those relationships and building the network, especially early on. So, you can lean on those people in your time of need, especially once you move away and then things might get a little tough. But in the future, I think I will switch to property management companies. Just at this point, I’m trying to maximize the cash flow and return so I can keep the snowball going and put that back into more properties.

Ashley:
Well, that’s awesome, Hunter. And congratulations on those properties and taking advantage of being able to self-manage. I think it’s scary sometimes to do… Self-manage a property that’s far away. But what do you do? Are you going in and fixing the toilet? Are you making the repairs yourself or are you calling people anyways to go and do it? So, it’s not like you need to be around. What does your maintenance model look like?

Hunter:
Yeah. So, I usually just pick up the phone and I’ll either Google or use other connections in the area with local plumbers or local handymen that can help and get to the property in times of need. And some of the relationships I built from being at Penn State, Altoona, some local friends in the area, their family owned investment properties. So, I’ve relied on him to go over and check out some properties from time to time. So, it just seems like as I’ve starting to get more and more experience, I’m always on the phone, making phone calls as real estate investors. So…

Ashley:
I think one really good thing to do if you are an investor starting out or even if you are experiencing, you haven’t done this yet is, make a contractor list, a vendor list and keep track of all of those vendors and contractors that you have used or maybe you have called and gotten quotes from them or somebody referred them, you may not even need them now. But just to keep that list so that when you are in a pinch, you need that electrician, you can go through, Okay, here’s three right here. I can call and get bids on. And instead of having to Google it every time, because I used to have to do that too all the time, and finally, made that list and it’s definitely been super beneficial. And then I can just pass that list off onto somebody that’s working with me and say, Here. Here’s the people that I use and the people that I call to.

Tony:
Actually, I’m glad you’re added that last point because that’s where we’re at in our business right now is that, as we’re adding people to our team, I had some vendors saved to my phone. Sarah had some saved in her phone. Omid had something saved in his phone. And as we’re trying to onboard this new person, we’re all airdropping contact because it’s all in one spot. So, we use monday.com. Now. Monday’s cool because you can… It’s like a C… It has some CRM contact management type functionality. So now, we’re building out our vendor database inside of monday.com. That way, no… As the team expands, there’s one golden source of information that everyone can go to, to figure out, Okay. If we need to call pest control in Joshua Tree, who do we go to? If we need to call a window repair guy in the smokey mountains, who do we go to? And it’s all one centralized location.
So for the records that are listening, obviously, the most important thing is to get started. But if you can take some of these little tidbits and really lay yourself a strong foundation when you have one or two properties, when you get to 10 or 20 properties, it’s going to be so much smoother and so much easier if you’ve can lay that strong foundation.

Ashley:
That’s exactly what we did too. It’s in monday.com and the same just the context of all the vendors and what we did it by trade. So, there’s a column for each trade and then list it out. But yeah, so if you guys need some property or project management resource, you can check out monday.com or there’s Asana, all these different project management of resources and tools that you can use to track your business. And they’re not a sponsor of the podcast at all, but we would love them to be if they like to. But it’s great when you’re getting started as building your systems and processes now because they’re also, you’ll be like me and Tony and you will be scrambling to get them into place when you are building your teams. Well, Hunter, I want to take us to our mindset segment. Is there anything, any kind of expectation you had jumping into real estate and then realize that the realty of it is that it’s not the same?

Hunter:
Yeah. I would say for me, the biggest thing, especially right now, I feel like I’m in a plateau where it would be the patience aspect. Once, it was like, bang, bang, bang, got the first three deals. And now, I’m in the phase of trying to continue to grow capital. So, I think starting out and moving quickly for myself in those early days, the mindset of thinking the snowballs can continue to move that fast, for me, was a mindset shift. I had to acquire more patience if you will.

Tony:
I think that’s a really interesting point to bring up, Hunter, because a lot of people who were entrepreneurial, I think by nature, are also somewhat impatient. And I always go back to this quote that I heard from, I think it was Jeff Bezos, and he talked about part of the reason Amazon was so successful, was because they had patient to capital. And the way he phrased it was like, If we can spend whatever a million bucks and we don’t need to see a return for 10 years, we’re going to be able to beat the person that needs to see a return in 10 months. And that was the ethos of a lot of the ways that Amazon made decisions. And obviously Amazon’s one of the most well funded companies on the planet. So, all of us can’t have that same time horizon. But I think the point of patience as a real estate investor, there is some truth to that. Because if you can be a little bit more selective, a little bit more patient with your deal making, then you can make sure you’re always going to get good deals.
So, I just love that point. Because I know, I struggled with patients a lot. Especially in my earlier 20s where I wanted the success now and I wanted to be a millionaire now and I wanted the capital now and I want all these things now. But as I’ve gotten older and I’ve matured, I’ve realized that there is a sense of patience that really does help you become a better business person.

Hunter:
And I think you had a great point there of staying patient, so you don’t make the wrong decisions on deals, that’s a great point. And that’s something that instead of just going out and trying to acquire as many doors as fast as possible, just so you can say you have X amount of doors, staying patient and making sure you’re still buying good strong cash flowing properties that are fit your investment criteria.

Tony:
So, I want to take a star Ricky Rockstar. But before we do, I have just a couple more questions for you, Hunter. Not necessarily related to your deals, but a lot of people who are listening still have day jobs, just like you do. Two questions I want to ask you. First, how have you been able to manage or what I guess tips, advice you have for people that are looking to invest in real estate while managing family, while managing a job, what tips you have for them to manage that time. And then the second, you feel you’ve become a better real estate investor because of the work you do in your day job.

Hunter:
Yeah. So, one thing I’ve implemented that’s really helped me and I think might be overlooked by people that are early on is meditation. Meditation is 100% been one of the biggest game changers for me to implement into. I try to do it every day. I don’t get around to it every day, but a few times a week being able to meditate for 10-20-30 minutes to decompress and detach from everything going on. It just helps me come back to everything, more focused and more ready to attack the issues at hand. To the question on my day job, helping my real estate investing, 100%. Being able to identify, investigate and analyze properties for Sheets has definitely given me the skillset from a networking and communications standpoint, all the way to being able to look at the numbers and then pencil things out. So, it’s definitely helped go hand in hand throughout my journey thus far.

Tony:
Yeah. Just one more follow up and we can go onto the next segment. But I think there are so many people that are very eager to leave their day jobs, not realizing that sometimes there are benefits to working that job that will help you become a real estate investor. First and I think the most obvious thing is, you’re more bankable when you have a job, it’s much easier to get approved for a loan when you have a steady W2 income. I remember the first loan that I got from my investment property, they were able to approve me on a job offer letter. I had gotten a new job offer where my salary had increased pretty significantly and all they needed was the offer. I didn’t even have the job yet. And they were able to approve me on that. So. There were definitely some benefits. But there were also other soft and more technical skills you pick up on your day job that will allow you to become a better real estate investor.
In my day job, I focused on leading people, building systems, managing processes. And believe it or not, a lot of real estate investing is leading people, building systems, managing processes. And a lot of what I learned in my W2 job, I still apply in my real estate investing business. And I really do believe that’s, what’s helped fuel a lot of the growth that we’ve seen. So, for those of you that are listening, just if you can find a way to use your day job as a resource and as a tool to help you become a better real estate investor, then getting up every morning and going to work becomes just a little bit easier.

Ashley:
Hunter, I want to take us to our rookie request line. So, this is where anybody can call in and leave us a voicemail at 18885 rookie. And we may play your question on the show for a guest to answer. So, today’s question is from Jake Apollo.

Speaker 4:
Hey guys, how’s it going? This is Jake Apollo. I’m in [inaudible 00:46:04], Montana. Sorry for the background noise. I just started was see your podcast. And I’m in a project right now with my dad. I’m going in about 150K-200K and the house can be worth between 9 and a million, 900,000 and a million dollars, all equity. And I’m wondering moving forward in real estate, what’s the best, maybe not the most crazy profit margin, but the safest and entry level step I should take, that would allow me to get into the market without over extending myself or putting myself jumping into water too deep, that will allow me to get my footing in the real estate market, whether it’s rentals or buying a tipping. Where it would be? I appreciate it. Thank you guys. Bye-bye.

Hunter:
Yeah. I would say, from my experience, the safest, the easiest way and the smoothest way for me to get into real estate investing was the owner occupant way. So, putting 3 to 5% down, living it for 12 months and then renting it out, that was a very bite sized step for me to get into real estate investing. And then partnering with my dad, going in, holding it as a long-term play. But then recognizing that given the market changes, there’s other exit strategies and having other ways to get out of the deal if you need to. So yeah, those were two of the easiest ways for me starting out.

Tony:
So, I want to take us to our next segment, which is the rookie exam. Hunter, I know you just graduated from college a few years ago, but we’re going to take you back. This is that final that you didn’t study enough for maybe, you had to pull an all night before. But these are three questions that we want to ask every investor that comes onto the show. So question number one is what’s one actionable thing a rookie should do after listening to this episode?

Hunter:
I would say, if you haven’t already, go right down your why. For me, it’s my family and my freedom. And when things get tough, when things get stressful and overwhelming because they definitely will, especially probably early on. Being able to lean back and really know your why and why you’re doing everything and putting yourself through these overwhelming or stressful situations will help you push on.

Ashley:
The next question is what is one tool, software app or system that you use in your business?

Hunter:
Rent Ready has definitely been super crucial for me from the self-managing perspective.

Ashley:
Yeah. So if you guys are self-managing and you haven’t checked out a property management software, definitely do your research and look at them, there has become so many options even just in the…. God! How long have I been investing? Eight years, maybe. Property managing, eight years. But there’s so many options out there from when I first started. So, it makes your life so much easier.

Tony:
Awesome. So, last question for you, Hunter, where do you see yourself being in five years?

Hunter:
In five years, I would like to be close to my goal of $10,000 a month in that cash flow. So, a long way to go, but that’s where I would like to be and see myself in five years.

Tony:
You talked about a little bit already, Hunter, but it does snowball, right? And as you start to accumulate more deals, it becomes a little bit easier to get the next one. And the cash flow builds on top of the cash flow. And as you build a presence for yourself in these markets, you start to get more deal flow and it all just compounds on top of each other, man. So, for you just a few years removed from college, I can totally see you far surpassing that goal over the next five years, man. And we’ll be excited to get you back on this show, on the Real Estate podcast. Once you’re crushing it like that, and we can hear how well you’ve done.

Hunter:
Well, I appreciate that. That means a lot coming for you guys. This is like a dream come true. I haven’t listened to you guys since day one. So, this is awesome.

Ashley:
Well, we’re so happy to have you.

Tony:
Always. Always. Well, before we close out, Hunter, I just want to shout out this week’s Rookie Rockstar. So, if you guys would like to get featured on the Real Estate Rookie podcast, drop a notes in mine or Ashley’s Dms, get active on the Real Estate Rookie Facebook group, we’re in the forums. But today’s Rookie Rockstar is Alexandra Nicole. And Alexandra sat just close on our second property in eight months. Last January, when I started reading about real estate investing, I never ever thought I could get one, let alone two properties that quickly. So, property one was purchased for 100 and about 30,000 dollars with 20% down, ARV was $170,000, renovations were about five grand. And they were able to [inaudible 00:50:49] this property, get back the down payment, which they used for property two. And Alexandra bought property two for about $125,000, spent four grand on the rehab and was worth $165,000. And the plan is to be able to get the down payment back for property number two, which they’ll then roll into property number three. So Alexandra, congratulations to you on the amazing success.

Ashley:
Hunter, can you let everyone know where they can find out some more information about you and possibly reach out to you?

Hunter:
Yeah. So, you can find me on Instagram @property_profits, it’s my real estate account. And then you can email me at [email protected]

Ashley:
Thank you guys so much for joining us this week. And I hope you took a ton of knowledge from Hunter. And Hunter, thank you so much for coming on to the podcast and sharing with us, your story and lots of great advice. I’m Ashley @Wealthfromrentals and he’s Tony @TonyJRobinson on Instagram. And we will be back on Saturday with a rookie reply.

Bank of America Securities research analyst Mihir Bhatia joins ‘Power Lunch’ to discuss how much mortgage volumes will fall, if Bhatia’s coverage universe can survive a fall in mortgage volumes and which companies have advantages in this environment.

As I begin gathering my thoughts about what might happen next year, I like to look back at my predictions for the previous year to see how I did. It’s useful to look at what I got right and learn from what I got wrong to become a better investor. 

I’m not a professional forecaster and don’t maintain my own economic models. But as an analyst and an investor, I do study tons of data to form a thesis about what is likely to happen in the coming months and years. The point is not to get it all right—that’s impossible. Data is backward-looking, and we can never say for certain what will come next. The point is to understand the most likely scenarios and to form a thesis about the economy that enables confident decision-making. 

I create a lot of content and update my thesis regularly when new data emerges, so I don’t have one concrete “prediction” from last year, but let’s look at some of the themes that made up my 2022 thesis.

A Tale of Two Halves 

In January 2022, I wrote, “I don’t think the dynamics of the housing market will change too much in the coming months. Demand is still strong, supply is still incredibly low, and prices will likely keep going up…Ultimately, what happens in the second half of 2022 is more of a question mark for me. My estimate right now is that cooling will drop year-over-year appreciation to 2% to 7% appreciation rates by year-end.”

A major part of my thesis last year was my strong belief that 2022 would be “a tale of two halves” for the national housing market. We knew the Fed wasn’t going to start raising rates until March, and I felt that given the seasonality of the housing market, price appreciation would peak in Q2, and then the second half of 2022 would see cooling.

Overall, I think I nailed the timing of the market shift. It looked like home prices in many markets peaked in June (while others are still growing), and are now seeing month-over-month declines (which is different from year-over-year, which is how I made my prediction). The shift happened right at the halfway point! The most recent weekly data from Redfin shows year-over-year appreciation at around 6%, which is right in range, but we’ll just have to see if I was right about 2-7% by the end.

The Fed Playbook

In November of 2021, I wrote, “If rates rise quickly, it could cause a shock to the system, and housing prices could slide backwards. But, the Fed is not likely to do that. They will likely try to raise rates as slowly as possible to allow economic expansion and wage growth to counteract the impacts of rising rates. This is what happened post-Great Recession, which was one of the strongest periods of property price growth in American history—despite rising rates. That said, if inflation stays high for too long, or even starts to accelerate, the Fed could be forced to raise interest rates faster than they want to, which could hurt housing prices.“

I think I got the logic here right, but with a caveat (more about that below). I believe the Fed’s intention around the end of 2021 was to follow their old playbook from post-Great Recession and raise rates slowly. I believed that because they said that’s what they would do! 

This wasn’t exactly a hot take. But, I did recognize the very real chance the Fed could be wrong about inflation, and they could be forced to break from its post-Great Recession playbook and raise rates rapidly. And as we all now know, that’s exactly what happened. 

Mortgage Rates

Although I recognized the Fed might be forced to raise rates quickly, I’ll be honest, I did not think interest rates would rise as quickly as they did, as much as they did. I thought supply-side improvements would help moderate inflation sometime in Q1 or Q2 of 2022 (even though increased monetary supply and strong demand would keep inflation relatively high), and then the most likely course for the Fed was to follow their 2009 playbook and raise rates gradually. 

But that’s not what happened. Instead, lockdowns across the globe persisted, and the Russian invasion of Ukraine caused even more supply-side issues. These events, coupled with the increased monetary supply and strong demand, sent the CPI higher than I believed it would go. It remains stubbornly high today, and mortgage rates are hovering around 6.25% as of this writing. 

About those mortgage rates, that’s where things went off the rails for me. On November 21, 2021, I posted this on Instagram (I’m @thedatadeli if you don’t follow me): 

Wow. It burns my eyes just looking at that. When I can’t fall asleep at night, it’s this post that haunts me. 

To be fair to myself, this was posted before the Fed announced three rate hikes in 2022, and we were flying blind, but I figured I’d give you all a good laugh at my expense. And, at least I was very slightly less wrong than Realtor.com, CoreLogic, and Redfin. 

But to be honest, even once the Fed announced three rate hikes in 2022, I still didn’t think we’d have rates as high as we do today. I figured we’d still end 2022 somewhere around 5%. Given that rates are around 6.25% as of this writing, I think it’s safe to say I missed badly on this one. I knew rates were going up to a more ‘normal’ level, but I just didn’t think the Fed would be as aggressive as they have been. I expected inflation to come down sooner, not because of Fed action, but because the supply chain would open up. That didn’t happen, and the Fed is going full throttle on rate hikes with limited success in containing inflation so far. 

Given this, I see more downside risk in the national housing market than I did at the beginning of 2022. The decline in affordability accompanying this rapid rise in rates will weaken demand and put downward pressure on prices. It’s hard to say what will happen from here, but I still believe that a “crash” (20% decline or more) is not the most likely scenario on a national level, but some markets could see crash-level declines. 

The Inventory X Factor 

When we entered 2022, inventory (the number of homes on the market at any given time) was historically low. When inventory is super low, it signals a seller’s market that is likely to see price appreciation. And sure enough, that’s what we saw in the first half of 2022. 

I knew that as rates rose, affordability and demand would fall, typically sending inventory upward. But inventory is not just about demand. It’s also about how many homes are listed for sale. There’s a lot of seller psychology to account for. Most people don’t want to sell their homes for a loss, so in a correcting market, many sellers opt to wait out the correction. I wrote about this idea in May if you want to understand more. 

I honestly wasn’t sure what would happen in the second half of 2022, which is why I considered it the X factor that would ultimately determine if the national housing market remained slightly positive or skewed negative by the end of the year. I landed on the side of “slight modest YoY appreciation” because I was skeptical we would see inventory hit pre-pandemic levels, which turns out to be correct. Whether my price prediction is correct remains to be seen. 

But the simplicity of this national-level chart betrays what’s really going on in the market—the housing market is splitting. Different metros are seeing very different inventory dynamics. 

Just look at the difference in Active Listings between Austin and Boston. 

In Austin, Active Listings are up 60% YoY, which indicates a rapid shift from a seller’s market to a buyer’s market. Pretty easy to see prices coming down in Austin. 

On the other hand, we have Boston, where active listings have been declining! Still a seller’s market here. Prices could still moderate, but on a much smaller scale than in Austin. 

So inventory really is becoming a major X factor! We’ll still have to see this all play out, but it’s definitely the number one thing I’m watching these days. 

Conclusion

Given the complexity of the economic climate in 2022, I think my thesis has held up pretty well so far. Of course, I wish I wasn’t so far off on mortgage rates, but as I said above, the point of developing an investing thesis is not to be right about everything. It’s about formulating an educated understanding of the market that helps you make informed investing decisions. In that respect, I’m pleased with my 2022 thesis because my overall understanding of the market was good and allowed me to make solid investing decisions. 

I locked in low-rate financing on long-term fixed-rate loans, dove more into large multifamily investments to take advantage of long-term supply constraints, and underwrote deals with little to no market appreciation in the next few years, just to be conservative. 

As we approach another year of uncertain economic conditions, I encourage you all to start thinking about your investing thesis for 2023. Take the time now to take stock of the economic climate and the shifting market dynamics. Think about what might happen in your market in the coming year and how you can make strong investing choices given the realities on the ground. What will high rates do to inventory in your area? What asset classes will offer good returns? How do you protect yourself from a potential rise in unemployment rates? 

You shouldn’t be scared of these conditions just so long as you’re prepared for them. There are always deals to be had. You just have to adjust your thesis to fit the market. To learn more about analyzing deals, be sure to check out my new book Real Estate by the Numbers here!

Run Your Numbers Like a Pro!

Deal analysis is one of the first and most critical steps of real estate investing. Maximize your confidence in each deal with this first-ever ultimate guide to deal analysis. Real Estate by the Numbers makes real estate math easy, and makes real estate success inevitable.

I’ll share my 2023 thesis with you all soon.

In the meantime, I’d love for you all to join me in this exercise in the comments. What did you get right about 2022? What did you get wrong? Let’s all share and learn together.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Alexander Goldfarb, senior REIT analyst at Piper Sandler, joins ‘Power Lunch’ to discuss how to look at opportunities in the REIT space, why the single-family REITs are outperforming multi-family REITs and more.

Mindy:
Welcome to the BiggerPockets Money Podcast show number 337, where we talk about why the military is the best job straight out of high school.

David:
Not to talk smack about the college world, but you take a kid fresh out of college, let’s put him in the Harvard MBA program, right? Like top-tier, fresh out of college, never had a job before, but this kid is brilliant. And you throw him against an infantry guy who’s never done a thing in business. And I’m not going to say that the Harvard guy won’t win, but I will just say that the decision-making power and the ability to make those decisions under pressure, you don’t know how you’re going to do until you get into some of those situations. And so there’s something to be said for being in those kinds of situations that transfers into life. People crack under pressure. It’s nice to have an opportunity to learn that before you’re playing CEO.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and joining me today is my military expert co-host, David Pere.

David:
What’s up Mindy? How are you doing today?

Mindy:
David, I’m doing really good. I am so excited to talk to you about all the things. But before we do, David and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe that financial freedom is attainable for everyone, no matter when or where you’re starting.

David:
Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, or start your own business, we’ll help you reach your financial goals and get money out of the way so that you can launch yourself towards your dreams.

Mindy:
Ooh. That was a good radio voice, David. Okay, David, when we were discussing this episode prior to hitting record, you came up with the title, “Why the Military is the Best Job Straight Out of High School. And you had a really great reason to back up your statement. What is that?

David:
Well, there’s a lot of reasons and I could argue this back and forth, but the overarching theme is, would you rather be 22 years old, a $100,000 into student loan debt, no life experience outside of school and looking for your first job? Or 22 years old, four years of life experience outside of school, also a degree, no student loan debt and a four year employment history with an honorable discharge to back you up to a new employer?

Mindy:
Okay. That sounds a little bit better than the $100,000 in student loan debt. Okay, David, I want to get a bit of background about you for anybody who is unfamiliar with your situation. What is your military background and what is the financial situation when you go into the military? What does that look like typically?

David:
Yeah. I joined the Marine Corps in 2008, right out of high school. Not because I had these grandiose streams of becoming rich, but because I wanted to get out of Arkansas, didn’t have money for school and didn’t like school. So I was like, “I want to travel the world. This sounds like an adventure.” And for the first seven, seven and a half years that I was active duty, I made all the normal Marine Corps, stupid decisions or military or just young guy. I blew all the money on tattoos, cars, Harley, rifles, women. I mean, you name it. The money that came in went back out. Alcohol. That was in there too. So it is what it is. And in 2015, somebody handed me the book, Rich Dad Poor Dad and I read it and was like, “Oh, this is cool.” And then as I was trying to research, I was reading more books and learning more about real estate.
Actually, that’s how I found BiggerPockets. Because every time I’d Google a question, BiggerPockets would come up with the answer. And so then I read book on managing rental properties, a book on investing in real estate or rental properties, all the things. Bought a duplex, house hacked, and was like, “Oh, this is cool.” So that was 2015. And in 2021, I left the military after 13 years active duty as an enlisted Marine with a million dollar net worth, financial freedom and over 100 rental units. And basically at this point, I’m kind of like, all right, cool. Well, I’m going to talk to other service members about how to build wealth, because I think they are uniquely positioned to do so. And a lot of them just don’t understand.

Mindy:
I think this is really important to highlight. You just said you left the military as a millionaire with over 100 rental units and a bunch of other stuff that I can’t remember, because I’m stuck on those two. That’s not your typical exiting the military financial position, right?

David:
No. Absolutely not.

Mindy:
But then you also said the military members are uniquely positioned to do exactly what you did and you messed it up.

David:
Oh yeah.

Mindy:
You didn’t even do it right until 2015, you messed up a whole bunch of stuff. Imagine what you would’ve done if you would’ve been listening to the BiggerPockets Money podcast when you first started and you learned of all these amazing things, you could be a batrillionaire right now, David.

David:
Well, a prime example is that currently I have … Well, it’s dropped. When I did the math, I had $120,000 in my thrift savings plan. I currently have like 96 or 97, but it’ll go back up. But that 120, when I did the math, would’ve been worth closer to 300 had I just known which fund to put the money in. I had it in the wrong fund. I had it in basically bonds. Government backed securities. And so from 2008 to 2015, when I realized that mistake, which was basically every year during that period was a 10 to 30% return on the stock market. I was invested in government backed securities and I was contributing and doing all the right things that if I had just known which account to put the money in, it would be almost triple the value that it is currently.

Mindy:
Wow. I think that’s something that isn’t unique to the military. I think that’s something that when somebody decides that they want to open up and account, an IRA, a 401(k) or Roth IRA, whatever they’re doing, they put money into the account. I’ve had people ask me, “Well, I put money in so I’m invested, right?” Did you direct where that money should go? You have to direct where it goes and then they go back in and they’re like, “Oh, for the last year it has been sitting in cash. I have no value other than what I put in there. I missed some gains.” You could say that you missed some losses. I am not going to even get into the timing the market versus time in the market.
For that, you are going to go back to episode 335 with Jesse Kramer and Carl Jensen where we talk about timing the market and how basically, long story short spoiler, it’s a bad idea. But time in the market is very important. Because you brought up the TSP, let’s talk about that. The TSP for somebody like me who is not in the military and doesn’t really know what I’m talking about with regards to the TSP, that’s like the 401(k).

David:
Yeah, absolutely.

Mindy:
Same contribution limits that I have. So why is the TSP so great if it’s just the same as my 401(k)?

David:
I mean, the main reason is that now when you join the military … For the record, now when you join the funds go into a life cycle fund instead of the government backed security. So you’re already in a better spot. But currently with the new retirement, as of 2020, the military will match 5%. So I think if you’re in the military, the reason it’s better is that you’re going to get a 5% matching contribution, which means if you contribute 5%, it’s an instant, guaranteed 100% ROI on day one, as well as a pay raise. So if you’re in the military, that’s why I say at least the 5% in the TSP before you consider anything else. But I think the more the merrier. I mean, there’s a few things here and there, but they’re so similar. The biggest one is just the fees.
I think most of the funds are between 0.4 and 0.5% fee annually, which is really low. So that adds up very quickly. And then there’s a couple of other things here and there that I’m sure are super nuanced. But the biggest one outside of that is that if you’re in the military and you go to a combat zone, your limit as of 2022 is not 20,500 for the year, it is 57,000 for the year. And so you could go to a combat zone and you are taking your tax exempt cash and you stuff it into your Thrift Savings Plan, you could put $57,000 away this year.
And by the way, if you do that in the Roth, because with the Roth, you pay the taxes up front and not on the back end, well, your pay is tax exempt so you do not pay the taxes on the front end because that pay is tax exempt, you’re in a combat zone. You do not pay the taxes on your earnings when you pull it out because it’s a Roth. And so it’s the life insurance argument for triple tax exemption, same thing except better returns and you’re not life insurance. So I love it.

Mindy:
Okay, hold the phone. I liked the 5% employer match because there’s a lot of people who are … I call it an employer match. I shouldn’t. I should say 5% government match, but the government is your employer, so we’re going to call it the employer match.

David:
Yeah.

Mindy:
You just said that if I am in a combat zone, which does happen from time to time if you’re in the military, unfortunately, you can put up to $57,000 into your TSP. Whereas my 401(k) is still 20,500. Actually mine is 27,000, because I’m over 50 this year. But 20,500, if you’re not over 50, an extra 6,500 if you are. But if you’re in the military at any age, that’s not over 50, that’s any age, 18 years old going into a combat zone, you can put in $57,000 into a TSP, which they have a Roth option. And if you listen to this show, you will hear Scott Trench talk about how much he loves the Roth option. I love the Roth option. Holy cow, that’s almost Peter Thiel Roth winnings.

David:
Yeah, it’s crazy, right? I see the wheels turn. Imagine if you deployed five times and each time you were able to put anywhere near that. Now that being said, a new enlisted service member is not going to be able to put $57,000 into the TSP, because that would be like 120% of their base pay. Because you can’t make the deposits off all of your benefits. It has to be out of your actual paycheck.

Mindy:
Okay. That’s fair.

David:
There are definitely people who can. And realistically, even if you only put 25,000 in, that’s still 4,500 more than you would be able to outside of the combat zone. And the only thing I would disagree with you on that you said, and I don’t know that I speak for all service members on this, but I speak for at least some, is the word unfortunately that you used around combat zones because there’s a large amount of us who join and that’s like the itch. It’s like, “Send me. Put me in coach, put me in.” Obviously there are not always desirable outcomes from that, but-

Mindy:
That’s the unfortunately that I’m discussing is the undesirable outcomes when you don’t come back. That’s pretty sad. Okay. I’ll give you that. Everything else, that is pretty flipping amazing and I will go ahead and say that you have proven your point that the military is the best job straight out of high school. Now, for those of us who haven’t been in a combat zone, when I go there, the military pays for everything, right? I’m not paying for my own food and housing. So I could conceivably put all of my money in there.

David:
Oh, there’s a lot of crazy options. There’s also an SDP, Saving Deployment Program, which I did. Or Saving Deployment Plan, something like that, which is a government backed, 100% guaranteed, 10% ROI savings account that you can direct your paycheck to, but you can also fund with the stroke of a check. And up to $10,000. So if you had 10 grand in a bank account and you deployed, on day one, you could transfer the $10,000 into the SDP. You would’ve a government guaranteed 10% ROI. So it’s basically a 10% bond. And then when you leave the combat zone, you pull it back out. And so there’s a lot of very interesting things. And to make it even more interesting, combat zone doesn’t necessarily mean I might drive over a bomb or a spicy road bump as I like to call them. It could mean Kuwait.
Kuwait is not an area that is currently under any attacks, but it is in a area that is close enough that you could get called in and so while at Kuwait, you rate combat zone tax exemptions. And so there are locations and periods of time where you rate that. In fact, and don’t quote me on this, but we mentioned Doug. I believe sub-mariners rate that pay depending on which sea or gulf they’re in. So there’s a lot of very interesting situations where you might earn that. And then even crazier, while you’re earning the zone tax exemptions, you’re also getting hazard duty pay. So you’re getting a pay raise. And there’s other things that go into that. But yeah, your chow hall’s covered or you’re on MREs. I mean, while I was deployed … This was not while I was making good decisions. I did the SDP and I did increase my TSP contributions. But then in seven months I had like $17,000 of pure pay or left over even after buying basically just protein powder and supplements and cigarettes and whatever else while I was deployed.

Mindy:
It feels like we could talk about combat zone benefits forever, but I’ve got other things that I want to talk about. I know you have a website where you talk about all things military and money. Do you have an article or something about the benefits of combat zone pay?

David:
I do.

Mindy:
Okay. We will include a link to that in our show notes, which can be found at biggerpockets.com/moneyshow337. David, what is the name of your website? What is your URL?

David:
Frommilitarytomillionaire.com.

Mindy:
Frommilitarytomillionaire.com. Okay, great. And I bet there’s a ton of really great articles. I do have to confess, I haven’t spent a lot of time there because most of them don’t apply to me. And I think that’s really important to note. This super awesome Roth TSP with the $57,000 limit, I’m not eligible for. Now that I’m 50 they’re never going to let me join the military. So you really do need to get in there a little bit sooner. Let’s talk about some of the other benefits. I think one of the most well known benefits of the military service is either the VA loan or the GI Bill. So pick one and we’ll talk about that next.

David:
Let’s go GI Bill first so that your listeners stay paying attention because the VA loan’s where the real goods are.

Mindy:
Okay. So the GI Bill, when we were discussing this before we hit record, I said, GI Bill and you said, yes and there’s tuition assistance. I thought that’s the same thing. Can you please clarify the difference between GI Bill and tuition assistance?

David:
Yeah. And just for sake of clarity, I’ve been out of the military for a year so some of the amounts have probably changed, so I’m not going to speak specific dollar amounts. So don’t cite me on that. But I want to say it’s like six grand. That’s what I think it was. But tuition assistance covers school while you’re in up to, I think it’s $6,000 a year. And there’re stipulations. You can take two classes at a time. You have to pass them. If you fail one, then you might have to do some remission to be able to be eligible or you have to pay it back if you fail. There’re some things. But if you pass your classes … And I say this, I have a couple of friends who’ve done this. So I have an associate’s degree that I did with tuition assistance at nights while in the military.
But I have friends who have their bachelor’s, their master’s. I have a friend who has a doctorate degree all paid for by tuition assistance without touching a dollar in their GI Bill. So my example, I have the associates and I stopped there because well, I hate school and was like, “This is just a waste of my time for what I’m actually doing in life.” There’s no degree that says real estate investing, although my associates is in real estate studies, which is nothing more than what I needed to be an agent so a total waste of time. I digress. I have the GI Bill still. Zero usage. And I have transferred a percentage to each of my kids, 1%. So that down the road, depending on which kid goes to school, I can give them the GI Bill or I could use it myself now that I’m out.
So if I wanted to go back to school, I could and it’d be covered. If I give it to my kids, it’ll cover one of their schooling or half of both of their schooling. I could give it to my wife. I mean, there’s a lot of cool options. So yeah, theoretically, if I stayed in for 20 years, I could’ve earned my master’s degree and still given my GI Bill to my kids.

Mindy:
You seemed to make a very distinct point that you had transferred 1% to each kid. Is that something you have to do before you separate from service?

David:
Yeah. You have to do it at a reenlistment after eight years, which is where I got hosed, because it’s not clearly articulated. So when you reenlist, basically they were like, “Do you want to transfer your GI Bill? Or do you want to keep it?” And I was like, “Eh, I’ll keep it.” I was like, “I can transfer it later, right?” “Yeah, you can transfer it later.” Wrong answer. You have to do it during a reenlistment. Unless if you’re a commissioned officer, you have to do it with four years left on your obligation. But if you’re enlisted, you have to do it at a reenlistment because you have to have four years left. It’s a retention bonus or retention incentive. Which I actually disagree with the way that it’s handled because I did 13 years and wasn’t going to be able to transfer it without going into the reserves.
But what really happens is you hit that eight year mark, you reenlist, what you should do is you should transfer 1% to anybody you would ever want to allow to use your GI Bill. Your wife, your kids, your dog, whatever. And once you transfer a percent, then you can go in the system and you can tweak that percentage at any time. So if one of your kids goes to school, you can say, “Yep, they get a hundred because the other one didn’t.” Or, “50/50 because they’re both going to school.” Or, “Neither of them went to school so my wife gets it all.” Or whatever. But if you don’t make that change, then you’re going to have to wait until the next time you reenlist to transfer. And if you don’t reenlist again, then you will not be eligible to transfer it because it is a retention bonus. So play the game right. Transfer 1% and then you can adjust allocations down the road because you earned it.

Mindy:
Okay. And that also sounds like you could go into a great bit more detail on your website. Have you made a video about that? Is it in your book?

David:
Yeah. There’s some information in the book on it. I might have an article or two on the GI Bill. It’s not exactly my expertise because I haven’t used it so I don’t know that I have anything super detailed on it. Although I’m thinking about using it because you can get a pilot’s license with it and that sounds fun. So depending on if my kids actually seem like they’re going to go to school, I might just use it.

Mindy:
Okay. Wow. You don’t even know what I’m going to ask you next. But that’s another financial advantage of serving in the military is the free skills you get. And the one that I can think of off the top of my head, the big one is the airline pilot skill. Because yes, you can go to airline pilot school. I have no idea about it. I’m not eligible to be a pilot because my eyesight is horrible. I’m not correctable to 20/20. I cannot see. They won’t let me fly and it’s been my whole life. So I found this out very early. I never looked into it. But I know it’s super expensive to go and learn how to be an airline pilot. It’s like hundreds of thousands of dollars or four years of your life in the Air Force. I mean they all have planes, right? Does the Army have planes?

David:
Yeah. They all have at least some equivalent. Well, I don’t need to be talking smack about different branches of the military, but let’s just say that there are branches of the military that are assumed to have more aircraft than others and that assumption’s not always correct, depending on how you think about things and what kind of aircraft you’re talking about. Like the Marine Corps has way more helicopters than you would ever know. The Navy has an exorbitant amount of planes. The Army is more helicopter and the A10 or whatever, but it varies. The Air Force is definitely the heavy mover logistics side more than the combat side for aircraft.

Mindy:
Okay. Oh, okay. Well that’s interesting. I didn’t know that either. So what are some other skills that you can get in the military besides the airline pilot, which you might use your GI Bill for, but could also have been a pilot if you-

David:
Yeah. I have plenty of friends who did that. In fact, I got a guy who I used to … When I was a Cub Scout leader for my oldest in Hawaii, I was the assistant den leader or whatever. And the guy who was the den leader, he was a Lieutenant Colonel. He retired and he flew the private jet for the general and he’d been a pilot his whole career and now he’s working airlines. So yeah, totally doable. I will say that being a pilot in the military is not necessarily the easiest gig to get into, but I do have a lot of friends who have done it and had successful careers in and out of the military. I think the intangibles honestly are better, but there’s so many … I mean, medical field. There’s doctors and nurses and whatever. That’s a good one. They’ve got Jags, like legal officers. The military goes and tries to poach law students and say, “Hey, we need Jags.” And so, you can get those for the doctor’s side. You’re learning all these skills in an area where you can’t be sued for malpractice. So there are benefits to that, even though the pay may not be as good.
I was a transportation logistics guy. I drove big trucks and did big picture logistics. I could do a lot with that right now. But I mean even infantry. You think infantry, oh, this sky learned how to shoot a gun so that’s not transferable. Maybe. I mean, yeah, you could do security, whatever, but the real benefits are the intangibles. You learn how to lead. You learn how to make decisions under pressure. You learn how to make decisions quickly under pressure. You learn how to be a critical thinker. You learn how to work as a team. You learn discipline and whatever. Those intangibles I think are actually what’s more important.
Not to talk smack about the college world, but you take a kid fresh out of college, let’s put him in the Harvard MBA program, right? Like top-tier, fresh out of college, never had a job before, but this kid is brilliant. And you throw him against an infantry guy who’s never done a thing in business. And I’m not going to say that the Harvard guy won’t win, but I will just say that the decision-making power and the ability to make those decisions under pressure, you don’t know how you’re going to do until you get into some of those situations. And so there’s something to be said for being in those kinds of situations that transfers into life. People crack under pressure. It’s nice to have an opportunity to learn that before you’re playing CEO.

Mindy:
That’s a really good point. That is. And I didn’t even think about that because I wasn’t in the military. I didn’t learn how to make decisions. Boy oh boy. You’re like, oh, take your four years out of the military and you’re right out of college degree. I’m like, oh yeah, I was trash when I was making decisions as a college kid.

David:
I went to Afghanistan when I was 20. I turned 21 in … Oh no. I take that back. I turned 21 four months after I got back from Afghanistan. And so the seven months that I did there and the things that I learned there, you put me against my friends from high school that were in college at that point in our lives, I don’t know that there’s anything they could have beat me on outside of math.

Mindy:
And that’s fair. And you know what? They’ll beat me at math too and I went to college. I have three college degrees and math is not in any of them.

David:
And not to say … Many of them are successful now. I’m not here to critique that. But some of them are still paying off their student loan debt too.

Mindy:
And I’m going to agree with you on this. At age 22, the fresh out of college kid is not … Fresh out of Afghanistan, I think you’re going to have a bit more backbone and forcefulness.

David:
And my intent behind us talking about this is not to be talking smack about college and saying if you go to school you’re terrible and you have to join the military. It’s just that I spent time as a recruiter in the military. So I hate the stigma that if you don’t go to college, you’re a failure. That idea that you have to go to school and that is the route. It’s not necessarily always the best route. And so I like to encourage other options. And I think that an option that allows you to travel the world, gain real world experience and go to school for free once you figure out what you actually want to learn … Because how many people change their major? Oh yeah, there we go. There’s a statistic that’s over 50%. I think it’s like 67% of people change their major and of that, 50 or 60% change it again. You don’t know what you want to do when you’re 18, 19 20. So why not spend a few years trying to figure that out in an environment where it doesn’t cost you a fortune?

Mindy:
Absolutely. I really like that. I’m going to throw you over to the episode number 44 with Tinian Crawford, Captain DIY. He got his associate’s degree in just six short years. For those of you who are unfamiliar, that is a two year college degree. And he uses 0% of it. He was not in the military. He was in college going and he’s like, “College just isn’t my thing.” And now he’s an electrician. He was working for college and then decided to go out on his own. And he’s like, “I have to block out time to have time for myself. Otherwise, I’m just busy all the time. I could work 24/7/365 and still be busy all the time.” And college isn’t for everybody. So what do you do if college isn’t for you? Well, maybe the military is for you. Here’s some more options. Here’s some really great options.

David:
Learn a trade.

Mindy:
Learn a trade. But here’s some really great life experiences that you’ll get while in the military.

David:
And while I made the joke about trade and we were talking about careers, and then we can pivot to the good stuff, the VA loan, all of those trades are available. You can do cybersecurity. You can do counterintel, you can do intelligence, you can do communications. But you can do plumbing. You can do electrical, you-

Mindy:
In the military?

David:
Yeah. We need plumbers when we set up a base. We need electricians when we run pretty much anything. They’re wire dogs. There’s water dogs, whatever. And in those occupations you can earn journeymen certificates while serving. So I have three or four journeymen certificates for various things while in the military through … I can’t remember the name of the program so I apologize. I think the certificates are actually in the closet back there. I’ve never used them because I don’t have a job, but you can earn those journeyman. So you could leave the military as a journeyman electrician with four years experience, no debt. And there are ways to really set yourself up for success. Yeah.

Mindy:
Wow. I didn’t even think of that.

David:
Yep.

Mindy:
Well that’s why it’s not the Mindy show today, it’s the David show. Okay. One last really quick question. When you go to Afghanistan, does your passport get stamped?

David:
Unfortunately, no. In fact, when I was stationed in Japan, I could not convince them to stamp my passport until the one time I flew back on my own for leave rather than on military orders. So the only two stamps that I have in my passport that is now expired and I have a new one, but the original passport, the only two stamps are Mexico when I was in high school and Japan the one time I flew home on leave. And I went to 13 countries in that first three years in the military. None of them are in my … So I’m like …

Mindy:
Because that would be a cool stamp. I’m not going to Afghanistan anytime soon. I’m not going to Kuwait. I’m not going to Iran. I’m not going to North Korea. I’m not going to any of those places because-

David:
I’ll never go back to Kyrgyzstan. Yeah.

Mindy:
That’s a bummer. Okay. Now to the VA loan. The [foreign language 00:28:26]. The big, big, big, big, big dog. The VA loan is amazing. And I’m a real estate agent. I was under misconceptions about the VA loan for the longest time until I met John Lallande. I believe he was episode 303 of the BiggerPockets Money podcast. He was my go-to lender forever. I met him through David because I was helping a veteran client, active duty military, active duty Marine client buy a house and he was using his VA loan. And as I was talking to John, I’m like, “Wow. Really? They can do that? They can do that?” I was writing up this contract and they paid $0 out of pocket. They got a check when they sat down at the closing table. After buying a house, they walked away with a check because of the VA loan. Let’s talk about the VA loan. Who is eligible for a VA loan?

David:
Service members and vets, federal employees.

Mindy:
Federal employees too?

David:
Sorry. No. That’s my bad. Service members and vets.

Mindy:
Okay. Well, but it’s more than that, right? If I sign up today and I’m in the military today, I can’t go and get it, right? There’s a-

David:
Yeah. There’s time requirements on that. And there’s a couple different stipulations, but the biggest one is 90 days on active duty orders before you’re eligible for the VA loan. So even a reservist, if you deploy for more than 90 days, you can then use it. If not, you got to wait the six years for the reserves. But if you’re active duty, within your first three or six months you could use it.

Mindy:
It and you have to be honorably discharged, right? You can’t use this if you’re dishonorably discharged.

David:
Yeah. If you’re big chicken dinner, as we call it, bad conduct discharge, or other than honorable … Or sorry, dishonorable. If you’re either of those, then you can’t use it. But if you’re other than honorable, general, or honorable, you could use the VA loan.

Mindy:
Okay. Why would somebody want to use the VA loan?

David:
Oh, I mean, why would you not? It’s the best primary residence mortgage in the market. I could go on and on and on about that.

Mindy:
Go on and on and on about that. Why is it the best primary loan residence? Okay. That’s a very interesting stipulation. Primary loan residence. So you, David, can use your VA loan?

David:
Yeah.

Mindy:
Okay. But you can’t use it on all of these rental properties that you’re buying?

David:
No.

Mindy:
Okay. So this is only for owner occupant.

David:
Yeah. It has to be owner occupant loan. And the word is intend to occupy and people like to misuse that and say, “Well, what if I just say I …” No. What it means is you intended to move into it. And then they understand if you have orders to Maryland and you buy a house 60 days prior to moving there because you can close on a house up to 60 days prior to occupancy, and then three weeks later, the military is like, “Ooh, Maryland. California.” And you’re like, “Crap.” Well, you already bought the house so you’re not going to be hosed because you got a change of station.

Mindy:
You did intend to occupy it. You didn’t buy it knowing that you weren’t going to move from your house down the street. That is not intending to occupy it. And I want to highlight, and John said on his episode, he’s like, “Look, mortgage fraud is mortgage fraud. And I will tell you that it’s mortgage fraud. And if you want to go out and try to explain to …” Did he say the FBI? It’s a serious deal. If you want to go and try to explain to the FBI why it’s not mortgage fraud, good luck. But you are not going to get any backup and you are not going to win.

David:
Yeah. It’s a felony charge. I think it’s a $10,000 fine and up to five years in prison or something like that. So what I always tell people is, look, there’s a million loopholes. There’s a million ways to skin this cat. There’s a million ways to get out of it or get around it or whatever. And you might not get caught. But people do get caught. And the reward of owning a house is not worth the risk of becoming a felon and spending time in jail when you could just do it the right way and still own a house. So it is what it is. In fact, I just made a post that’s getting all kinds of fire on my Facebook group because somebody basically messaged and said … Well, first they used the incorrect version of your and there so he’s getting ripped up for that. But he messaged me. It was on TikTok I think. And he commented and just said, “Can you teach me?” Or, “How do I ‘intend’ to live there?” Or something like that. The question do was basically how can I pretend-

Mindy:
How do I show intent?

David:
Yeah. And I responded with three words. You live there. That’s the way to do it. You actually move into the freaking house. Problem solved.

Mindy:
And that is for all primary residence loans. That’s the conventional loan. That’s the FHA loan. And that’s the VA loan. If you’re trying to get a primary residence loan, you are saying that you are going to live there for 12 months. If you are not going to live there for 12 months, if you have no plans to live there, you are committing mortgage fraud. Will you get caught? I don’t have a crystal ball. I don’t know. But like David said, it is not worth it. There are so many ways to make money in real estate. You should not be committing mortgage fraud.

David:
Yeah. And on the big picture, selfish thing, if enough people do that, there’s always the chance that the VA revamps their program and it’s not as good as it is now. So it’s not worth ruining the benefit. So to answer your question, I think the reason the VA loan is so incredible is that the guidelines are incredibly loose. The actual VA guidelines are very, very, very minimal for them to guarantee the 25% of the loan. And so it’s up to lenders. Most lenders have their own overlays and their own whatever. For a prime example, there is no minimum credit score requirement per the VA. So if you found a bank that would lend it to you with no credit score, like a zero, okay, the VA will guarantee it. You’re not going to find a lender who will give you a loan with zero credit score, but I’ve seen as low as 500.

Mindy:
That’s pretty garbage.

David:
Pretty significant.

Mindy:
Yeah. Okay.

David:
There’s not a 50% DTI cap. So I’ve seen somebody buy a house, a duplex in Venice Beach, a $1.93 million duplex that John actually did the loan on and he bought a … He house hacked it. His debt to income was like 76% and he got approved. Whereas you know with an FHA or conventional, once you hit 50, you’re done. That’s it. 49 is the limit. What’s another one? Oh, there’s no loan level pricing adjustments. So with an FHA loan or a conventional loan, your interest rate will adjust at 740 credit score, 680 credit score and 640 credit score. So somebody with a 739 credit score will have a lower interest rate than somebody with an 800 credit score. The VA loan does not adjust the first time until 640. So somebody with a 641 credit score using the VA loan will have the exact same interest rate as somebody with an 820 credit score, which is why the rates on the VA loans are often better because if you fall in that 640 to 740 window, every other mortgage product out there will have the adjustment for interest rate and the VA does not.

Mindy:
That’s interesting. I didn’t know about all of these. I knew about the 0% down, which you haven’t even mentioned yet, which is kind of like whatever. And I do want to circle back to the house hacking, but you have a no down payment loan. The only loan that I know of that is available to non-service members is the USDA loan, which is intended for rural properties. It’s an interesting kind of loophole to get a 0% down loan, but only rural properties qualify. But the USDA map doesn’t keep up with progress. So it’s entirely possible if you’re buying a new build in a place that had no houses three years ago, that could qualify for a USDA loan.

David:
It’s weird. And to my knowledge, the USDA still has MIP and PMI. I’m not 100% on that. But the VA loan does not have mortgage insurance premiums or private mortgage insurance at all, which is something that separates it from a 5% conventional or a three and a half FHA. Now, the one thing is the VA loan does a funding fee, which is rolled into the loan. So it doesn’t come out of pocket. It is 2.3% of the loan amount on the first use, and 3.6% on consecutive uses of the VA loan. So if you buy a $100,000 house, it’s 2300 added to the loan. I have a full breakdown on this, so I won’t go into super details, but it boils down to about $11 a month for every $100,000 you borrow. So if you buy a million dollar house, zero down, it’s about $110 a month that you’re paying for just that funding fee, which is peanuts compared to mortgage insurance premium and PMI. To put it in perspective, my $80,000 duplex, my first purchase with an FHA loan, my PMI was $81 on a $80,000 property.
So the math’s not even remotely close. And I will tell you, and I will argue all day about risk and opportunity cost and all of the other things. Putting 20% down to save that 2.3% funding fee will never win over putting zero down and reinvesting the 20% or putting zero down and having the 20% sitting in a bank account so that if something goes wrong, you have reserves. So I could go on and on and on and on and about all of those things but I like to say that, because everybody’s always like, “Oh, but the funding fee.” Yeah, it exists because it exists, but it’s still better than any other mortgage product with less than 20% down. And it’s better than putting 20% down.

Mindy:
So if I do use my VA loan and I put 20% down, there’s no funding fee?

David:
Yeah.

Mindy:
Okay. But on anything less than 20% down, there is a funding fee, which makes it sound like I should never put any money down and just pay the funding fee.

David:
Absolutely. Yeah. There’s very few times where I think it makes sense to put any money down with the VA loan, just because of opportunity cost.

Mindy:
I do know that there are some misconceptions on VA loan caps.

David:
They have the zip code caps. In January 1st, 2020, it went away on your first use. And then you can do a one time restoration if you sell your property. So that’s why that guy was able to buy an almost $2 million duplex, zero down while active duty. Because there’s no limit on your first time purchase, as long as you qualify for the mortgage. So if you’re buying a fourplex in San Diego County, you could buy $1.2, $1.3 million fourplex because the rent from the other units will balance out your debt to income and blase blah. After the first time use, then the limits come into play. And really it’s probably better if we don’t get down that rabbit hole so I’ll just throw this out there. The entitlement things for uses of the VA loan after the fact, I’ve seen someone buy four houses with the VA loan so it’s very doable. But what happens is that after your first use, the answer to all of your subsequent questions is it depends on your situation. And so it’s going to be 100% different for every single person. So go talk to a lender and give them your actual situation. Don’t come to me and be like, “Can I use the VA loan again?” Maybe. It really depends.

Mindy:
Okay. I am going to say yes to all of that, except I disagree with you on go talk to a lender. There are a lot of lenders who do great work. There are a lot of lenders who do great work and do terrible jobs with the VA loans because that’s not what they do all the time. If you want to get a VA loan, you need to speak with somebody who knows what they’re doing. I’m going to throw out a plug for Cross Country Mortgage. If you have a VA loan need, reach out to David, reach out to me, [email protected] I will connect you with them. I have somebody who can do a 17 or 21 day VA loan close. If you are familiar with the VA loan and you’re like, “Never going to happen.” Yes, it will. They’ve done three or four. I can’t remember how many military clients-

David:
I’ve seen them do 14.

Mindy:
Yeah, David’s done 14 with them. And when I say I, I mean my clients who were in the military. I’ve done zero. I don’t have VA loan entitlement. But I have worked with them and they have closed lightning fast. There are ways to do it. There are ways to take what, 45, 60 days to close on a VA loan? And that is never going to get you a property. That is just going to get you headaches.

David:
Yeah. Happy to make introductions to lenders or agents or whoever. I mean, we’ve got a pretty large network of people. And to just bring your point home, if you have an agent or a lender who’s telling you, the VA loan is not competitive in your market, then you need to just find a new agent and lender because they’re wrong. And I have data within my community to prove based on the amount of loans that I have seen done. I mean, John did $20 million worth of loans on his own for people in my Facebook group in just the state of California in 2021. In San Diego and Orange County. The hottest market in the country and the hottest market we’ve seen in decades. And you’re going to tell me, “Oh, you can’t use the VA loan in competitive markets.” Wrong. Your agent and lender doesn’t know what they are doing and you should change.
And just to the two biggest things that I hear outside of the funding fee are the inspection and the appraisal. And everybody’s always, “Ooh, they’re so terrible. It’s not going to get approved.” And blah, blah, blah, blah, blah. The inspection’s not that crazy. And the appraisal process for the VA loan, if you look at the national averages, on average VA loan appraisals come in higher than non-VA loan appraisals. But the appeal process is where it gets really crazy because you’re an agent. If you have an appraisal come in $40,000 low and you call that appraiser and you’re like, “Hey, here’s a whole bunch of reasons that we think you’re wrong.” Their ego gets involved. How often do you think they actually change their … I mean, it’s not very common for them to say, “Oh, you’re right. Yeah. We’ll give you the extra $40,000.” When you appeal with the VA, it doesn’t go to the appraiser.
It goes to the VA. And so there’s no ego involved and they will actually look at your data and go, “Oh yeah. You know what?” And then on top of that, if they say no, you can then go a third time and I’m drawing a blank on the organization, but there’s a third person that you can go to a third time and … And I’m going to mess up the specifics on this one, because I’ve not actually seen it done but I know it’s a thing. If all of that fails, there is a … And I’m going to call Chris and confirm exactly where this is so I can link to it in your show notes. But there is a way to essentially say, “Yo, this guy’s moving here in 30 days and if you don’t do this, he’s not going to have a place to live.” And they can rush order and you might even … I’m like that’s level four. So there are ways to get your VA loan bumped up, the appraisal, that there are not in other loans. So your appraisal process is actually way better with the VA loan. The inspection, okay, yeah, sure. It’s whatever, but it’s not any worse than the FHA loan.

Mindy:
It’s better than the FHA loan. I have two horrible experiences. One with the appraiser whose ego got involved. He’s like, “I’m not taking your additional data.” “What do you mean you’re not taking my additional data? I have all of these that prove that my property is worth way more than you’re saying.” And he’s like, “No.” Just refused. And it was a conventional loan. There was no appeals process whatsoever. And with the FHA loan, oh my goodness. The FHA appraiser is like, “Well, it’s fine at value as long as you do all of these things.” And I’m like, “All of those things? This is crazy. Okay, fine. We’ll do this. We’ll do this.” Some of them were legit. You have to have a smoke detector and a carbon monoxide detector on every level. Great. Three levels. Here’s three. I don’t care. There was an electrical outlet that was tripped outside. So we hit the reset button and now it works. And we had to find an electrician to come out to certify that the outlet worked, even though we made a video with a lamp plugged in and we’re like, “See, it’s on, it’s off. It’s it works.” And it was a nightmare.

David:
I hate that.

Mindy:
I really hate the FHA loan.

David:
I that so much because okay, you’re remodeling a house. If you had an extra smoke detector, does your value go up? No. So why are you hitting me on something that’s so stupid? It’s a safety thing and it should get pinged on the inspection as something to fix. Sure. But does a smoke detector affect the value of the home? Let’s be real.

Mindy:
She did take pictures as proof that the smoke detector was in there. I didn’t have to have some, I don’t know, smoke detector inspector come out. But it was so hard to find an electrician. All the electricians are like, “No, I’m not coming out there for that.”

David:
Yeah. Not wasting my time for that. Yeah.

Mindy:
Yeah. Finally, the buyer’s brother. She’s like, “Oh, my brother’s an electrician.” I’m like, “Get his butt out here to certify that this stupid outlet works.” It was a nightmare.

David:
Or just certify it and we don’t even care if he showed up.

Mindy:
Ooh. I would never put that in writing David.

David:
Not saying that’s the right thing to do. I’m just saying, hey, an electrical outlet that was a GFCI trip should not be a hit on your appraisal.

Mindy:
Shouldn’t. And with the VA loan, it wouldn’t be. My inspection process with the VA loans have always been very smooth. And when I was talking to John about what do I do if it doesn’t pass, he’s like, “Does it have an oven?” I said, “Yeah.” He’s like, “It’s going to pass.” He’s like, “It’s a nice house. If it was falling down, if it was a dump …” It doesn’t just have to have an oven, but there are parameters. They don’t want the service member to be buying a house that is a rat trap, infested hole. They want them to buy a nice house or a decent house. So there are minimum thresholds that they have to meet, but all of the houses I was selling were nice.

David:
Well, let me make the caveats and I’m going to go very, very brief, just overview of other things that are out there and not going to go into detail. And I’m going to tell you that the reason I’m not going into detail is because, again, these are very niche things where every single lending company is going to have a different way they do it, different things that they allow and don’t allow. And these aren’t necessarily the easiest programs to find. So I’m going to just keep it very broad. However, these are things that I have seen done personally. So it might not be the easiest to find a lender, but Mindy and I are happy to help you out with finding someone who does these things. The VA has a renovation loan. It is better than the FHA 203K. It is also zero down. It will do more than the FHA 203K.
And I’m going to just leave it at that because, again, every lender’s different, but I promise you it’s better. And I have a breakdown of that on the website. I can link that to you if you want. It literally compares. And it’s like VA wins. The VA has a one time use construction. You can buy a piece of land and new build with zero down with the VA loan. You can build a barndominium with the VA loan in doing that.

Mindy:
A what?

David:
Oh, you haven’t seen these things? It’s like the new trend. Barndominium. Basically, you build your house into a barn. So you build a 70 by 50 or 50 by 50 pole barn. And then you build your house into the back part. And the front part is … It could be a hangar for an airplane or your cars or your trucks or your tractor.
So it’s a big thing in Texas and states where people live on a farm and they’re like, “Well, I need a barn and I need a house. Why don’t I just put the house in the back half of the barn and build a really baller barn?” And the VA can build that. I mean, there’s stipulations on the construction type. And again, every lender’s different. But I know a lender who I have personally talked to who has done that for a client. So a lot of weird things that you can do with the VA loan, because again, the guidelines are pretty loose as long as you got lenders who are willing to … And they’re more willing to work with you because who’s guaranteeing the loan? Oh, that’s right. The government. All right. Pretty secure.

Mindy:
Wow. Okay. So yeah, there’s some pretty strict parameters. You have to be a vet or active duty, honorably discharged or not dishonorably discharged. And you have to live in it. It’s your primary residence. There you go.

David:
And you got to qualify for the loan.

Mindy:
Oh. And qualify for the loan. Yeah. I guess that’s a point an important fact too. But that seems really easy. So here’s some parameters that you have to follow. We didn’t even talk about house hacking, David. How do you house hack with a VA loan?

David:
I mean, the same way you house hack with anything else. You can buy a fourplex with the VA loan, you can buy single families with ADUs. One of my favorite ways, my buddy Rio did this and we should totally have him on the podcast to talk about this sometime because he’s just a cool dude. Him and his wife, they’re both awesome. Great people. John and I used to go to this house. We always joked that it was like the Playboy hangout. We would go to the house to … That was where we went to watch the Super Bowl. We’d have to set a curfew, be like, “Okay, John, we both agree that we will leave at this time no matter what.” Because otherwise you get sucked into partying all night. Great dudes. They’re entertainers. But he has a five bed, four bath amazing house, ironically on Players Lane.
I don’t remember the numbers, but that was the address in California. And it is right outside the main gate in a really nice subdivision. Like the kind of place that you have no business buying as a young service member. Single family, $600,000, $700,000 house that’s worth million, million two now. Three car garage. Just awesome. And he rented four of the bedroom. He was a single at the time captain. Now he’s married, but he rented four bedrooms to other lieutenants and captains who were single. He was making $1,000 a month to live in this house. Now that he’s moved out because he got stationed in Japan, he’s making $2,000 or $3,000 a month to live in this house. And by the way, all of his roommates are commissioned officers in the Marine Corps who are single, make good money, respect where they live, love to have a good time. There’s a reason that we always went over there. They had a garage that he turned into a gym. He had a room that he knocked a wall out of and turned into a pool hall. I mean, it was the coolest house you could possibly own as a young … At the time when he bought it, he was a Lieutenant. So pretty young in the military.
So there’s that. And then there’s fourplexes and everything else. I mean, anything you can do with an FHA or whatever. And just as long as you buy smart, house hacking is the best … I mean, I can go on and on. It’s the best way to start in real estate.

Mindy:
It really is. You cannot use the VA loan for an investment property, except you can use the VA loan for an investment property when you live in one portion of that investment property. So why not start your real estate empire with your VA loan, your 0% down VA loan and live on Players Lane?

David:
Yeah.

Mindy:
David, this was huge. This was so much fun. I learned so much about the military. I do believe you backed up your initial statement, which we said at the beginning of the show, the military is the best job straight out of high school. Please remind people where they can find out more about you.

David:
Pretty much any social media platform as either Military Millionaire or From Military to Millionaire.

Mindy:
Okay. And your website. Your website, your book, your podcast.

David:
frommilitarytomillionaire.com and we wrote a book. The No BS Guide To Military Life: How to Build Wealth, Get Promoted and Achieve Greatness.

Mindy:
Who’s we?

David:
Oh, me. I just try to not sound like an egotistical jerk. So I say we as if my team did stuff.

Mindy:
You wrote a book. You are a published author.

David:
Yeah. And it’s one of those books, I wrote it as everything that I wish I’d known the day I joined the military. So it’s kind of like a chronological order for if you were joining the military, here’s a book to hand someone and say, “Hey, if you do this, I can’t guarantee you’ll be financially free millionaire by the time you leave in four years, but I can guarantee you’ll be a lot better off than you would if you hadn’t read it.”

Mindy:
Why didn’t you call it everything I wish I had known the day I entered the military?

David:
Because The No BS Guide To Military Life is what the people voted for. I do almost everything via a poll and I have a very large Facebook group of service members and when I polled them on 20 different things, this was the clear winner so we went with it.

Mindy:
Okay. And what is that Facebook group called?

David:
Military Millionaire.

Mindy:
Military Millionaire. Is it? I thought it was From Military to Millionaire.

David:
I mean it probably shows up that way. The URL though is Facebook.com/groups/militarymillionaire.

Mindy:
Military Millionaire. Okay. Awesome. David, thank you. Oh, did you mention your podcast?

David:
I have one of those too. Military Millionaire podcast. Pretty much everything. You just Google … I tried to keep in … And for the record, the reason it’s From Military to Millionaire is because when that whole platform started, I was not by any means a millionaire and it was just documenting my journey. So it’s not an ego trip. It’s just, I was prophesying my future.

Mindy:
There you go.

David:
And I got lucky.

Mindy:
Well, you said it and it came true. Okay, David, this was so much fun. I really appreciate your time today. I appreciate you sharing all of this information. If you are thinking about joining the military, if you have kids in the military, if you have kids who just aren’t on the path to college, this episode is for them. Please share this with them. Please share David’s website, his book, his podcast. He is a wealth of information, clearly, as you just heard. He is a wealth of information on all things military.

David:
Why, thank you Mindy.

Mindy:
Okay, David, should we get out of here?

Speaker 3:
I suppose so.

Mindy:
From episode 337 of the BiggerPockets Money podcast, he is David Pere and I am Mindy Jensen saying Uncle Sam wants you.