Manage episode 297619411 series 2926608
In this episode of the Real Wealth show, we'll peek behind the curtain to see the reality of buy and hold investing. Our guest will talk about the good, the bad, and the ugly of being a landlord, and how patience and perseverance can really pay off.
Brent Palmer lives with his wife in the San Francisco Bay Area. His investing story begins with a full-time job as an engineer, two side jobs, and a desire to get off the work treadmill. After listening to the Real Wealth Show, joining as a member, and attending live events, he pulled the trigger and bought three properties in Kansas City. Those first investments came with challenges however, but he stuck with it, bought more single-family rentals in a different market, and has been able to quit those two side jobs. You'll hear his Real Wealth story in this interview.
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Announcer: You're listening to The RealWealth Show, with Kathy Fettke, the real estate investor's resource.
Kathy Fettke: On today's RealWealth Show, we're going to peek behind the curtain to see the reality of buy-and-hold real estate investing; the good, the bad, and the ugly and how, when you stick with it, it really can turn out very well in the end. I'm Kathy Fettke, and welcome to The RealWealth Show. Our guest today was feeling overworked, on a treadmill. Even with an electrical engineering degree, he was having trouble keeping up with the very expensive San Francisco Bay Area and he didn't see a way off of that treadmill. Then he listened to The RealWealth Show and joined as a member at RealWealth Network, and started attending our live events.
At that time, he pulled the trigger, and bought three properties in Kansas City. Even though those first properties have come with their share of challenges, Brent is still on a mission to build his real estate portfolio. So far, it's allowed him to quit his two side jobs. Brent, welcome to The RealWealth Show. Let's talk about when and why you started looking at real estate as a vehicle for retirement and investing.
Brent Palmer: Well, I was aware of you, Kathy. I had heard you on KSFO, talking of one of the financial gurus, maybe about 10 years ago. I was so touched.
Kathy: That was so long ago. Oh, my gosh, that's funny. KSFO, yes.
Brent: Right. That buzzed around in my head for a time. I was here in the Bay Area. I had graduated from Cal Poly San Luis Obispo in 2006. We were quite fortunate, my wife and I, to land a house during the recession.
Brent: Right. We got a really great deal on our place. Impossible now, of course, but that was a huge help as far as having that. Upon graduating with my engineering degree, I had this crazy notion, [00:02:00] "Well, wife, you can go ahead and stay at home, and I'll be the breadwinner." She was able to stay at home with our children for a while. That was really great, but I was a little naïve as far as Bay Area cost of living.
Thankfully, we got the house, but still, I was having to work multiple jobs. In addition to my main engineering job, I was working for a couple of tutoring firms on the side, doing statistics and math tutoring for high school students. I was staying pretty busy with that. It was just not an ideal situation, financially. I was looking for a way to get out from that, and really just be able to have one main job.
I was aware of you and so I started looking into the RealWealth Network. I signed up as a member and looked at your material, started attending live events. That was maybe about six or seven years ago, and attended live events for a period of time, maybe. Not a hugely long period of time, but perhaps, maybe over the course of a year, I attended several events.
It just got really comfortable. Then I talked with my advisor, Aristotle. It just felt really like a comparable thing, to go ahead and land that first property and try to transition out of working so much. I met with an affiliate provider in the Kansas City area. I know currently, from what I understand, RealWealth doesn't have a provider in that area, but anyway. At the time, there was somebody so I flew out there, got the lay of the land, was shown around of what rehabs looked like, what completed properties looked like. I went ahead, and this was in 2016, in the span of about nine months, acquired three [00:04:00] properties. Then I set up--
Kathy: Wow. All in Kansas City. That was probably a big learning curve there.
Brent: That was a big learning curve. I had stayed, of course, quite busy with my jobs, but I ended up making the transition with my main day job to another employer and so I had some company stock. That helped me then to go ahead and be able to get the funds for procuring those properties, because I was just busy. It was like, "How are you going to get the funds here to go ahead and procure a property?" That just helped. It definitely made it possible for me to get those properties.
I know that's not for everybody, but I'll admit I had listened to some Keith Weinhold as well and that influenced me, where if you're in a rough situation, just go ahead and take the tax hit. I was young enough. I felt my risk tolerance was high enough, that I was comfortable going ahead and using those funds that were for the company's stock, and going ahead and using those as down payments for my three properties in the Kansas City area.
Kathy: Yes, as you mentioned, we're not working in Kansas City anymore. I think it's a great place. We just didn't have luck with property management there. We had difficulty with the older homes. It was a tough market, even though there's a lot of growth there, at least for us. I know that you experience some of that. What's the ugly side of real estate, and investing out-of-state that people need to hear.
Brent: Right. That's true. That was a challenging market. I was definitely gung-ho because I wanted so much to be able to quit my side jobs, [00:06:00] and just have more time. I grabbed those three properties. Unfortunately, one of them did get placed with a bad tenant. I can't recall. It might have been actually the second tenant on one of those. She looked good on paper. She passed the background check, looked good. She had a job with Kansas City Medical Center even.
That Kansas City affiliate actually had brought in and developed a property management company in-house. I was with that property management company. At the time this tenant was giving me grief was about the same time that that property manager actually folded. I wasn't aware. She had actually left town, and left the bathtub faucet on and at full blast.
Kathy: Oh my gosh. What a--
Brent: Yes, I was faced with an astronomical water in utility bill. [chuckles]
Kathy: What about damage to the house?
Brent: I was fortunate in that the rehab had been done well enough to where-- the tub didn't overflow, the piping was good.
Kathy: It was just water loss. Oh, my gosh. That would be a real crime. You'd get arrested for that in California. We can't waste water like that. [laughs] Oh, my gosh.
Brent: Right, pretty hard.
Kathy: Do you think she just forgot?
Brent: I'm sorry.
Kathy: Do you think she just forgot to turn it off, or intentionally--?
Brent: No because, let's say, I had photos of some other parts of the house that definitely would indicate no. There was, I think, some intention with that [chuckles]. I don't know. She didn't know me from Adam, but anyway.
Kathy: You're "the greedy landlord", I guess. I don't know. Oh, I'm so sorry. You had water bills. [00:08:00] Sometimes, in certain states, there is a lesson there, that if the tenant doesn't pay the water bill, it's stuck with the landlord, right?
Brent: That's true. That's a good point. Right. I was hit with all the utilities. Then, just of course, I did an expensive make-ready to prepare for the next tenant on that, and transition with the new property manager. It was definitely an eye-opening experience. It's good that we stress this here. It's not always going to be a smooth experience. This was early on for me. It was definitely rough sailing for a bit of time there, to get the safe--
Kathy: Did you doubt yourself at that point? Like, "Oh my gosh. Here, I thought this was going to be my answer and instead, it's just more stress and more headache."
Brent: [chuckles] To be honest with you, I didn't immediately quit my side jobs. I was still really busy and, thankfully, I had the funds to deal with it. That's why it's so important to have your reserve funds. When you're working with your lender and they want to see that, that's why you have reserve funds. I just ate it. Of course, I undertook legal proceedings with her, but nothing. We weren't able to track her. She just skipped town.
To me, I was just so busy, it's like, "I'll just deal with that." I wasn't pleased about it, but I just felt it would work itself out over time. I was willing to be patient because I had heard enough people say real estate is not a get-rich-quick type of scheme so I was--
Kathy: That's a great attitude. That's a great attitude because things do happen and the odds are, eventually, it does happened to you, but that is why the reserves are in place. I'd recommend at least $5,000, set aside for property, or six months to 12 months of the rent, set aside. If you just have it in your [00:10:00] head, "This is for times like this, so I don't have to worry about it. I'm not going to be upset about it. It's just part of the cost of doing business." We have that in our actual business. We have emergency funds and a fund for legal in case that comes up. Then when it comes up, you don't stress about it.
Brent: Exactly, because I think the water alone because of the tiered system, the water I think it was over $2,000 digitally.
Kathy: Oh gosh, please. How are those properties doing now?
Brent: Of course, as you said, RealWealth doesn't have an affiliate in that area, but there was a property manager who overtook the properties for RealWealth Network members who were in that situation with that particular previous property manager folding. I stayed with that particular provider over time and developed a trust with them there.
It hasn't been totally smooth as far as tenants. Maybe that's why you folks aren't in that area right now, but I actually I'm currently dealing with another tenant right now who's, this is very recent, he's trying to squat on a property. We will see how that goes.
Kathy: I know other people who have done really well in Kansas City, but we just have not. We tried probably four different providers and couldn't make it work, even though I think it's a great city. It's a growing city. There's a lot of positives. I'm sorry that you're dealing with that. It could happen anywhere, but it does sometimes. Sometimes in situations like that, I just sell the house and say, "This is just bad luck," [laughs] and I go get something else.
Brent: Yes, I'm actually considering that. We'll see how things go. I think partly might be due to the COVID situation and people's [00:12:00] finances is that he qualified for a property, now he doesn't want top up the funds for rent. We'll see how it goes.
Kathy: Oh, boy. What are some of the lessons you've learned and how are things going now in general? Do you still believe in real estate?
Brent: Absolutely. Again, it's not a get-rich-quick scheme. I haven't quantized it. Here I'm an engineer but I haven't quantized exactly what I'm netting per month. I have seen it improve my finances. Even in the worst-case scenario, you're still building wealth in the sense that you're making payments or your tenant is making payments on a property and over time, you're going to own that property and you'll see rents go up over time. There's still a benefit there. That's definitely one thing I've learned is just be patient and be content.
As far as how are things going on, I actually have diversified. I've got two properties in Indianapolis as well. I am currently, as we speak, working on acquiring a third. In addition, I mentioned I spent some funds to acquire downs, which I think for a lot of people might be a challenge. People look and think, "How am I ever going to acquire real estate?" The downs are not huge of course relative to California real estate. I was able additionally because we got our house here in the Bay Area, I was able to use a couple of cash-out refis. I think both of those were for the Indianapolis properties.
Now one of the properties I've had for about three years in Indianapolis. We are using the equity in that house [00:14:00] now to tap in and acquire a third property in Indianapolis. It's rewarding because we got in, rates were higher at the time, interest rates were higher. We've seen them come down and now, we're going to cash in on the equity and acquire an additional property in Indianapolis.
That's been a much better market for me, has been very smooth sailing. I'm staying in Indianapolis for the time being and keep adding on one or maybe two properties this year, and we'll see how things go.
Kathy: Great. What's your ultimate goal in terms of real estate and in life? [chuckles]
Brent: [chuckles] Initially, it was simply to acquire-- The immediate need after meeting with Aristotle was simply to acquire three properties. We figured that would be enough for me to be able to quit the side jobs and focus on the day job and then real estate on the side. It's really a blessing to be able to go beyond that. At first, I didn't have any hopes. I was having trouble seeing how am I going to go beyond three? Now, we've been able to look at other means of financing these properties for the downs. We're continuing to go forward.
I think I have other cash reserves or other equity in other properties that I can tap into as well so I'm not eating up cash on my end to try to fund the downs for these properties. I'm just going to keep going, probably try to add maybe one a year for the time being. This will be six for me, and then I also structured my primary residence so that that loan is all under my name. I'll be at 7 then of the golden 10 as you call them for the golden parachutes for my real estate number, and then we'll probably try to focus on my life and structure it that way.
We've definitely tried to hear and listen to [00:16:00] your advice, Kathy, for structuring our portfolio. Then as well over time, there are processes I need to get more efficient on as far as probably work on developing spreadsheets, keeping better track of things. Then the legal end we're working on. I got some paperwork I'm probably going to be doing this week for the RealWealth Network's recommended legal provider. Because I have had some bleeding with property, just trying to shore up the bleeding as I go along and get more disciplined and more structured.
Kathy: What would more disciplined look like? Would your acquisition process be different?
Brent: I think it's just developing a better tracking program of costs. My property manager does a good job of all of that. As far as the asset protection, I know there's a recommendation to have I think separate possibly banking accounts for each properties, you develop the LLCs. I haven't gone to that level of detail. I need to work on that more.
It's just trying to have bulletproof, I guess, asset protection and be more disciplined. I'm trying to develop this as I'm running along the way. Obviously, I got three children, family needs and so it's definitely busy trying to get all the stuff in.
Kathy: Everybody has different opinions on how much asset protection they need. I personally don't have separate bank accounts for my properties. If they're highly leveraged properties, then I put them together in one LLC, but again, that's just me. I just figure there's not enough in them that someone would try to go after [00:18:00] properties that are highly leveraged within one LLC. Again, that's a discussion you have with your attorney. I love that you're looking at how can I run this more like a business? What's my criteria for acquisition?
What do I need to be looking for? Is it a certain amount of cash flow? Is it a certain amount of growth in the area, jobs, population, age of the house, renovation, brand new? What's your criteria? Then having the discipline to stick with that because sometimes you can't find it.
Kathy: Sometimes it takes a while to find exactly what's going to fit that. I'm happy to say that we do have a new marketplace at RealWealth where you can plug a lot of that in. I don't know if you've used that yet. It's brand new. We're just coming out with it, but you can put your properties in there and analyze them a little bit more easily, so check that out for sure.
Brent: Right, good point.
Kathy: Rich and I got a bookkeeper finally because it was just like, "It's so much detail in managing the properties once you get a lot of them." It's nice because then he presents us with a spreadsheet and we can see how our properties are really doing. I do recommend if you're too busy just get a bookkeeper. [chuckles]
Brent: [chuckles] That's a good way of doing it. I had the sense of just hitting the ground running with this stuff. Of course, it was for a time just I don't want to say overwhelming but working multiple jobs and it was more than I could keep track of. Now that things have settled down a little more, just trying to refine the process. Definitely take a look at that resource.
Kathy: Obviously, you all have good sense about things to be able to buy in the down market. That said, a lot of people weren't able to do that. I imagine there's a lot of equity in your primary. Have you refi that and lowered your payment there or potentially taking cash out for investing? [00:20:00]
Brent: Right, we have. We've actually refinanced two or three times. I don't remember, it's either two or three of our properties we are able to use the cash-out refi proceeds and able to land those, so, yes, definitely. We may do that again.
Kathy: Awesome. Yes, I know, with the [laughs] way prices have gone up. Have you noticed or even paid attention to whether the properties in Kansas City or Indianapolis have increased in value? Those tend to be markets that are linear, they don't tend to go up in value that much, but the last year has been phenomenal. Have you noticed any equity growth,
Brent: Right, it has. Right now we're refinancing one of our properties in Indianapolis and we're waiting to see the inspection report and see the appraisal, and see what we get for that. I do believe has gone up, but we're just waiting to see on that pretty sure. Then we may look into the Kansas City market. With that, I mentioned I've got a tenant that we're dealing with, squatting tenants, we may possibly try to sell that property. I looked into those. I'm pretty sure Indianapolis, because those are better quality properties, has done a higher versus Kansas City.
Kathy: Okay. It seems like you're at the level, almost at least, at the level of owning properties that potentially if your wife did most of the managing of it and could show 750 hours spent learning and managing your properties, she could qualify as a real estate professional if she's not working right now and help offset the taxes you're paying.
Brent: Right now [00:22:00] my youngest child is eight years old. She's pretty busy with the children and she is working right now. She's supportive of this, so maybe eventually.
Kathy: When a spouse doesn't have a W2 job, and they're able to show that they would spend more time on real estate, which again is 750 hours a year, then they can qualify as a real estate professional just from managing the properties, meaning taking over the bookkeeping and making sure the insurances is good and so forth. There's ways to document that. All right. Well, any other suggestions for new listeners or anybody who's thinking about getting started or investing? Some of the things you said are pretty scary. Again, I think you already said it, but what advice would you give to new investors?
Brent: Be patient and don't give up. Overall, I think it's a winning proposition and I've seen things improve over time. I think real estate is really good also in the sense, for employers as well because what this has done for me is it's enabled me now that I'm not having to work the side jobs, I'm more dedicated to my primary employer. When you're able to do that-- I'm not looking to quit my day job anytime soon. I think a lot of times employers look and have their 401(k) package and all of that, but I think what we do as real estate investors is actually really good for employees when you're still working a day job because it just makes you a better asset to that employer.
Kathy: Oh, that's a great point. You mentioned earlier too, you're feeling less stressed because again, you're not having that second job. How would you say on a scale of 1 to 10, [00:24:00] you've been able to create real wealth, meaning having the time and money to live life on your own terms?
Brent: It was definitely at a one or a zero probably, to begin with, where I was just being pulled by the necessities of life to I have to work so much. It's improved. I'm not to the point where I'm just living off the funds of my investment properties, but I'd say it's probably up there to seven or eight. It's definitely at the higher end of the scale.
Kathy: Oh my gosh. That's incredible. I love hearing that. All right, Brent, well, thank you so much for joining me here on the The RealWealth Show and inspiring our audience and showing what's behind the curtain. It's not always easy, but if you look over the long run, that $2,000 hit one day, but maybe you made that much in appreciation or in tax benefits. It's a long haul and you got people paying off the debt for you. You're going to look back, it'll just be a blip.
Brent: Thank you so much. I appreciate the advice and mentoring you've given over time to those of us in the RealWealth Network. Thank you, Kathy.
Kathy: Thank you so much.
Kathy: Thank you for joining me here on the The RealWealth Show. If you'd like to hear more RealWealth stories or get access to over 500 free educational webinars on everything, from asset protection to getting good insurance on your properties, to getting really good financing, you can get up to 10 investor loans that are backed by the US government with just 20% and 25% down. Then referrals to companies across the country who've helped our members at RealWealth acquire investment properties for the long-term with property management in place. You can do that at realwealthshow.com and it's free to join. I'm Kathy Fettke and we'll see you next time.
Announcer: The views and opinions expressed in this podcast are provided for [00:26:00] informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to realwealthshow.com.
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