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Why buy one rental when you can buy twenty?
Rich Carey is an Officer in the United States Military who is two years out from retirement. Even though he has moved every 1-3 years and has been stationed mostly overseas, he’s purchased rental properties all over the country. He’s flipped houses, flipped new construction, and done buy and hold investing. He currently holds 20 rentals in Montgomery, Alabama.
You’ll love his story and the advice he gives us on getting started with real estate.
We also chat about…
- Why he has 20 properties in one area
- How he turned his property management team into a renovation team
- Making low ball offers
- Buying HUD homes & Foreclosures
- Why Rich buys properties in cash
- Buying properties in IRAs
- TSP & military pension
Enjoy this chat with Rich Carey, and please subscribe to us in iTunes if you enjoyed it!
Show notes and links from today’s episode
- Rich on Money – Rich’s blog
- HUD Home Store
- Home Path by Fannie Mae
- Bigger Pockets
- 5 Surefire Ways to Payoff Your Mortgage Fast
Key takeaways from our chat with Rich Carey
1 – Have your property management team supervise your construction
Rich talked with his property management company about taking on some renovation management work for him.
He was buying distressed properties out of state and needed someone to keep an eye on the construction.
The property management company was originally uncomfortable with supervising the work, since it was out of the scope of work they usually do and they liked to see move-in ready rentals.
Rich got them on board by demonstrating that he was a serious investor who was buying multiple properties and he was willing to give them a cut in addition to the extra business.
It ended up becoming a mutually beneficial relationship for them both.
2 – Speculation is very, very bad
Rich made a mistake when flipping new construction.
He and other investors bought in a new development that they expected to go up in value and it didn’t.
The housing market collapsed and his investment didn’t pan out.
Rich also *almost* bought a $900,000 2 bed 1 bath in Monterrey, California and luckily did not.
That was a mistake he narrowly avoided. He does not speculate on real estate investments anymore.
Rich now follows the 1% rule.
Can the property rent for 1% of the acquisition cost (purchase price plus renovations)? He doesn’t buy if his investment doesn’t meet that rule.
- Example: $90,000 property plus $10,000 renovations = $100,000 acquisition cost. It must rent for $1,000 per month to pass the 1% rule.
He’s not concerned whether it’s the top or bottom of the market, whether there’s an impending bubble burst or not.
Rich doesn’t let speculation cloud his judgment.
3 – Look at HUD homes for cheaper rental properties
A HUD home is when an FHA loan gets foreclosed and then the home goes on the market. Sometimes there is a requirement that the home must be owner occupied for 30 days.
Rich recommends checking out HUD homes online and Fannie Mae homes.
It can be hard to find homes that meet the 1% rule in many markets, but HUD and Fannie Mae can be a good way to get a property that meets the requirement to be a good investment.
4 – Network your way into a better market
If you live in a high cost of living area and can’t find properties that meet the 1% rule, you probably know someone who lives in a cheaper market.
That person can give you a read on neighborhoods or connect you with the right people.
Rich recommends thinking a little bit creatively and see who you know in another market and reach out to them.
There’s no reason to invest in a high cost of living market when you can easily get into these smaller markets.
5 – Buy in cash
Rich’s 20 properties are entirely paid off.
He sold a $280,000 house in Virginia that was completely paid off and he used that money to acquire 6 new properties.
He has since snowballed those original 6 into 20 properties that are also entirely paid off.
Cash is king.
Presenting an all-cash offer allows Rich to get better deals. He can tell the seller he can close in 10 days.
He also avoids all of the paperwork and signs just one document.
While Rich acknowledges that leverage can be a great wealth-builder, there is something extremely solid about buying in all-cash as he does.
Rich did move his IRAs to a company that allowed him to buy real estate in his IRAs though.
This is called a self-directed IRA.
He does not recommend that everyone raid their Roth or 401(k)’s to buy rental properties.
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