JF2040: Early Start With Robert Leonard
Robert is a young investor who started with house hacking a condo right out of college. He initially had the impression that real estate was only for those with money and it wasn’t for him since he was young and couldn’t afford to buy a house. He now has completed 6 deals and is even focusing on long-distance rentals to find a better ROI.
Robert Leonard Real Estate Background:
- Real estate and stock investor, podcast host of two shows, ‘Real Estate Investing’ and ‘Millennial Investing’, and a full-time Corporate Finance Manager.
- 24 years old, has completed 6 deals, now focusing on long-distance rentals
- Based in Boston, MA
- Say hi to him at https://www.theinvestorspodcast.com/
Best Ever Tweet:
“Because of technology, my inspector was on face-time with me as he walked through the property. Showing me the inspections and helping mitigate the risk.” – Robert Leonard
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Robert Leonard. How are you doing, Robert?
Robert Leonard: Joe, I’m doing really well. Thanks for having me.
Joe Fairless: I’m glad to hear that, and it’s my pleasure. A little bit about Robert – he’s a real estate investor and stock investor. He’s the podcast host of two shows. First one, Real Estate Investing, the second is Millennial Investing. He’s a full-time corporate finance manager. He’s 24 years old, has completed six deals, and is now focusing on long-term rentals. Based in Boston.
With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Robert Leonard: Yeah, absolutely. So I started originally investing in the stock market, and I always thought that that was gonna be my way to wealth. I knew for a long time that after college I wanted to go work in a hedge fund. I was familiar with real estate, I knew it was something that people were doing, but I didn’t think that I could do it. I was only 20 years old, I didn’t think it was something that was possible for me. I thought it was only for the wealthy… Until one day I got more interested in it and I started to study it.
I learned that I was technically already investing in real estate, because I was told by my parents that as soon as I got a full-time job after college, I’d have to pay rent to live in their house… And I knew this even before entering college. And since I didn’t wanna pay rent to them, I worked almost full-time, my entire time throughout school, so that I could save money to buy a house when I graduated. Thankfully, I was able to save enough money to buy a condo before I walked at my college graduation.
So after living there for a few months I realized that I had a second bedroom that I never went in. So I thought “Well, I should probably just try and rent that out.” So I did, I was able to rent that room out for $700, and my total all-in costs were only $1,100, including the HOA fee…
Joe Fairless: Wonderful.
Robert Leonard: …so my housing costs were only cost me about $400/month.
Joe Fairless: And that’s in Boston?
Robert Leonard: It was just outside of Boston.
Joe Fairless: So that’s pretty cheap for just outside of Boston, I imagine.
Robert Leonard: Yeah. It was a condo, so it was not a full house, but it wasn’t too bad. So my housing costs were only $400/month, and at the time I didn’t know what I was doing, I didn’t know that that was real estate investing… But once I started to study real estate investing more, I realized that I was doing a strategy called house-hacking. So that’s how I initially got started. I continued to learn more about real estate, and I realized that there was a lot of people that were having success investing in real estate, and they really weren’t much different than me… All of the stories I heard with people that were actually just like me. So I said to myself “If they can do it, so can I.” That’s when I started to get more into real estate, and I’ve continued to invest since.
Joe Fairless: So you’ve completed six deals… Let’s talk about those. We know the first one… What was the second one?
Robert Leonard: The second one was a live-in flip. It was a property that I bought that needed a little bit of renovations, and we were doing those while we lived there, and then we’ll eventually turn it into a long-term rental.
Joe Fairless: Who’s “we”?
Robert Leonard: My family and I.
Joe Fairless: Okay. So did your family and you buy the first one?
Robert Leonard: No, the first one was just me by myself.
Joe Fairless: Got it, so the first one was you. How many years or months from one to two?
Robert Leonard: I went pretty much from one to two. The first one ended actually pretty interestingly… So I knew that there was something going on with the condo complex, because they were adding a special assessment to the HOA fee that we paid. We didn’t have any details as to what was going on, but we knew that something was happening.
So I decided to take a chance on it, and it turns out that they put seven million dollars in renovations into the property, but they used six million dollars from their HOA savings fund, which meant that the owners of the units only had to put about $10,000 into each of their own units for $65,000 in renovations. So essentially, I got $55,000 to my unit done for free… That increased the value of the unit itself, as well as the complex. So I decided to sell that property, and then I rolled that into the live-and-flip that I’m in now.
Joe Fairless: Oh, okay. Did you do a 1031 exchange?
Robert Leonard: I did not. I just sold it.
Joe Fairless: Okay. So how much did you buy the first condo for and what did you sell it for?
Robert Leonard: The first condo – I bought it for about $130,000 and I sold it for about $165,000. That was only over about a 7-8 month period.
Joe Fairless: And how did you have the 130k to buy it while you were in college?
Robert Leonard: I didn’t pay cash. I used a conventional — just 5% down, and so I saved 5% down and bought it that way.
Joe Fairless: Okay. When you were getting approved for that loan, what were some challenges that you had to overcome, if any?
Robert Leonard: I really actually didn’t have to overcome any challenges, because the job that I worked at throughout college was at a local bank, as a loan officer… So I knew everything that they needed, I had a great credit score, I knew everything that was going to go on, so that helped me a lot.
Joe Fairless: Okay. Did you get the loan from the bank that you worked at?
Robert Leonard: I did not.
Joe Fairless: How come?
Robert Leonard: I didn’t like their mortgage process. It was a small, local credit union, and they took a long time, and the fees weren’t necessarily as competitive, so I went with the bigger bank.
Joe Fairless: Okay. So you bought it for 130k, you sold it for 165k, over a very short period of time. Congratulations on your first deal; you went and put that into your second deal, which was a live-in flip, you and your family. How much did you buy it for?
Robert Leonard: We bought this for about a 145k.
Joe Fairless: 145k, okay. And how much down did you put in?
Robert Leonard: We put another 5% down.
Joe Fairless: 5% down… And what happened to that property?
Robert Leonard: We still live in it to this day. We’ve been in it for about 2,5 years, and we wanted to turn a little quicker and turn it into a rental, but we’ve liked living there, so we haven’t done that yet.
Joe Fairless: Okay. And property number three?
Robert Leonard: Property number three was actually my first real rental, and I went a long distance for this one. As you mentioned, I live in Boston; it’s an expensive market, so I actually went all the way to Texas to buy my first rental.
Joe Fairless: Alright. Well, where in Texas?
Robert Leonard: In a small rural town called Wichita Falls. It’s about an hour and a half, two hours outside of Dallas.
Joe Fairless: Okay. I have some cousins who live there, and I’m from Fort Worth, so I know the area. What did you buy? Purchase price, rents, budget to get it move-in ready, if any – what are those numbers?
Robert Leonard: We bought it for about 65k. I believe they were asking 70k and we were able to get it for about 65k. It was pretty much move-in ready, we really didn’t need to do anything; so there was no renovation costs, no rehab costs. We were able to get a tenant in there within about three weeks or so, for $900/month.
Joe Fairless: Excellent. And you still have that property?
Robert Leonard: Yes, I do.
Joe Fairless: You’re in Boston. That property is not in Boston. It’s a city that is very far away. How did you land on Wichita Falls?
Robert Leonard: So I am a big fan of a gentleman named Neal Bawa. He has great information about demographic data. I studied his strategy. So what I did was I was able to aggregate a ton of census data into an Excel spreadsheet. So I had all of this census data for about 7,000 cities across the U.S. So what I did was I narrowed it down to about a dozen different cities that had a lot of deal flow, a lot of inventory that I could afford, and also had good demographic data. It just so happened that I was making offers in all kinds of different cities, and it just so happened that the first deal that got accepted was in Wichita Falls.
Joe Fairless: How do you define, in this instance, what “good demographic data” is?
Robert Leonard: For good demographic data we’re looking at income growth, population growth, house value growth, a crime level that’s not too excessive, and then also I’m looking for crime levels that are trending down. So I don’t want crime to be trending up.
Joe Fairless: Okay. And trending over what period of time?
Robert Leonard: I usually look over the last decade or so.
Joe Fairless: Oh, that’s a good period of time. Do you look at it over the last decade for those other items as well? Growth, population, income, house value?
Robert Leonard: Yeah, so everything is pretty much over the last decade, except for the current crime level. That’s where we’re at currently.
Joe Fairless: Got it. Okay. Anything else besides those five things that you look at?
Robert Leonard: Those are the main things. Then once I’ve decided that it’s a good town, then I start to look at if there are real estate professionals there that can help with my business – competent and willing to help real estate agents, property managers, contractors, handymen, things like that. Because even if it’s a good city and you don’t have those people to help you, it’s very difficult to go long-distance.
So I look at those things, and then I’ll start to look at neighborhood data, and try and find the best neighborhoods to invest in. For that, we’re looking at income, poverty level and unemployment data, just to make sure that we’re investing in a good neighborhood.
Joe Fairless: Did you visit the house before you bought it?
Robert Leonard: I have not. I’ve never seen any of my long-distance properties. I still haven’t to this day.
Joe Fairless: I did the same thing, living in New York City, buying in Dallas-Fort Worth. I didn’t visit any of the properties before I purchased them, so I understand your thought process. A lot of people did not understand my thought process when I told them that… So why did you choose not to visit the property, and how did you mitigate the risk?
Robert Leonard: It’s funny, I went through the same thing. A lot of people told me I was kind of crazy, and all kinds of things… But it really didn’t seem that crazy to me. Technology has completely changed how we can invest in real estate. So for me personally, I work in finance, that’s my day job, so I’m not very handy; I don’t know anything about fixing houses. So even if I was buying a house literally next door to where I live, I wouldn’t know how to do anything to fix the property, I wouldn’t know even really what I’m looking at… So I’m relying on real estate professionals no matter where the property is. It’s the same when I’m investing long-distance. If something goes wrong, I’m gonna call my handyman and he’s gonna go fix it; or my contractors, or somebody on my team is gonna help me solve that issue, regardless of where the property is.
So going back to technology, my inspector that I had going through this property – he was literally on FaceTime with me as he walked through this property. He’s showing me all these different things, we’re having a conversation, and it was basically like I was standing there with him. So it really wasn’t much different.
And then to really mitigate the risk, since this is my first property, I really did try to mitigate the risk. I always told myself I was never gonna buy a single-family property. I only wanted to do multifamily. But I decided to go with this single-family because the numbers seemed great, and the mortgage was only about $250 or maybe $300/month. So I said to myself “Well, I can cover that myself with my salary if everything goes wrong. I can cover that, and at least not lose the property.” So the risk is relatively small on the downside, and the upside is great. So I knew if I didn’t just do a deal to get started, if I didn’t buy my first rental, I probably never would have. I knew I needed to just take action. The downside was pretty limited, so I just dove in.
Joe Fairless: How long ago was that?
Robert Leonard: That was about a year or a year and a half ago.
Joe Fairless: Okay. And what are your plans for that property?
Robert Leonard: The plans are to just continue to keep it as a rental for the long-term.
Joe Fairless: Property number four.
Robert Leonard: We just basically kept multiplying that process. I brought in a good friend of mine, who was interested in investing in real estate, so I brought him in with me as a business partner. We just continued to buy single-family properties. We buy multifamily too, but we also just buy more affordable, low-cost areas, and we just continue to do the same process.
Joe Fairless: Okay, so let’s talk about it. What was the fourth property?
Robert Leonard: The fourth property was a single family, also in Wichita Falls. Very similar to the first one. It was actually just a couple streets down. All the numbers were pretty similar. I think we got this one for about 72k, and it’s pretty much been the same. I think we rent that one for about $950/month, so it’s a little bit more… But it’s pretty much been the same process. We just try and rinse and repeat.
Joe Fairless: Okay. And you said you brought in a partner for this one?
Robert Leonard: Yes, so we’re 50/50 partners. We just put in 50/50 everything together and we try to keep it simple that way.
Joe Fairless: And I know you’ve got a property manager, so there was probably not any ongoing oversight on you and your partner’s part… But if there is something that needs to be addressed, who addresses it?
Robert Leonard: Actually, we don’t have a property manager. We manage long-distance ourselves… And we tested this with our first property. That first one in Wichita Falls that I did, I tested it. I said “Well, let me see what it’s like without a property manager. If it ends up being too difficult, I can always call X, Y and Z to get that property manager put in place.” I always made sure I had that as a backup, but I wanted to try it myself to see if I could save 10% a month.
So I did it for a while, I did it for six months, and it was really only an hour or two hours a month, so it really wasn’t taking a lot of my time. We’ve decided to just continue to do it ourselves, and save that 10% per month.
Joe Fairless: When there is something to be addressed, it sounds like you’re the one addresses it…?
Robert Leonard: Yeah, more or less. My business partner does some things as well, but I handle a lot of it.
Joe Fairless: What does he do?
Robert Leonard: More or less the same as me. I do most of the financial reporting, our accounting, and then if we need a maintenance call, or we need to call a handyman, or talk to our agent and set up a showing, he gets the showing set up.
Joe Fairless: Tongue twister.
Robert Leonard: Yeah… [laughs] He’ll do a lot of that.
Joe Fairless: Okay. How did you meet your business partner?
Robert Leonard: We actually just met through mutual friends, and we’d been friends for 4-5 years. We are very similar in mindset. We have characteristics that complement each other, so we’re not similar in that sense. He’s very extroverted, very good at sales, and talking to people; I’m more introverted, accounting, numbers-focused… So we complement each other well that way, but long-term we have a lot of the same goals, we have a lot of the same work ethic… So we sit really well together, and we had a lot of the same interests, so we decided to go together.
Joe Fairless: What type of loan did you get on this property?
Robert Leonard: Just a conventional 20% down.
Joe Fairless: And is it owned by an LLC that you two have ownership in?
Robert Leonard: Yes. So we buy it in our personal names, and then we quitclaimed it to an LLC.
Joe Fairless: Okay. Is that behind the scenes, because it would trigger a due on sale clause with the lender, or is that something that the lender is fine with?
Robert Leonard: Yes, exactly. It’s more behind the scenes. In general, of course they have the right… It’s not necessarily illegal to do as far as I’m aware, but to your point, the bank does have a clause in their note agreement usually that says they have a due on sale clause, which means they can make the loan due when the property is sold, and transferring it to an LLC is technically selling the property.
So they do have that right, but in general they don’t have an issue with it as long as you’re making monthly payments. So for us it hasn’t been an issue.
Joe Fairless: And what’s the advantage for you to do that?
Robert Leonard: We do it for the liability protection. We could get an insurance policy to do something similar, but in terms of protection, we wanted the LLC in place.
Joe Fairless: Property number five.
Robert Leonard: Property number five was, again, very similar to this one. This one was a duplex in Wichita Falls. We went a little bit outside of a good area for this one. We didn’t stick to our perfect neighborhood. But so far it’s been okay.
We got that one for — I believe it was about 122k. We put 20% down. Each unit rents for $750 a month.
Joe Fairless: And what gave you the confidence to move forward with it if it’s outside of your criteria that you had established previously with the crime?
Robert Leonard: It was still in the same town that we were happy with, and we had built relationships with a lot of people there. We started to get a little bit more comfortable. Our agent was very straightforward with us; he said “Look, it’s not the best neighborhood, it’s not the best area, but it’s also not the worst.” So we figured we would take a little bit of a risk on it. So far it’s been okay.
There were a couple properties that we were very close to buying, that were in some of the worst areas, but we decided not to, and we decided to really just stay focused on the middle or upper-class neighborhoods.
Joe Fairless: Okay. Earlier when we were talking about the current crime level, you wanna make sure it’s acceptable – how do you quantify what acceptable is?
Robert Leonard: So I got the acceptable number from Neal Bawa. There’s a crime index on a website called CityData, so basically we use that. Basically, anything under 500 is pretty good, it’s pretty acceptable. Anything above that, we tend to not look at. And of course, the lower, the better.
Joe Fairless: And the sixth property.
Robert Leonard: The sixth property was a single family… Nope, actually. Sorry. That was a duplex more local to us, where my business partner is house-hacking. We did that together, we bought it together, but he’s house-hacking in it; he’s living in it and we rent out the second unit.
Joe Fairless: Okay. That’s the most recent purchase, correct?
Robert Leonard: Correct.
Joe Fairless: Okay. So you’ve got the five purchases that you still own. You still own the first one, right?
Robert Leonard: Correct.
Joe Fairless: Okay. You sold the first one… Why not sell some of these other ones, since you were able to sell the first one so quickly and generate some cash?
Robert Leonard: We plan to in the future, but for now — they haven’t appreciated in value like the condo did. The condo – I was planning on holding it for a significant period of time and just renting it out, but because of the renovations that the entire complex went under, I decided to sell it, because of the gain. But for these, we plan on buying some more single-families probably in Wichita Falls, and some other areas that we’re targeting. Eventually, we’ll sell all of those and 1031-exchange them into a larger multifamily property.
Joe Fairless: Based on you experience, what’s your best real estate investing advice ever?
Robert Leonard: My best real estate investing advice ever is to live where you wanna live, and invest where the numbers make sense… And to also not go big on your first deal.
Joe Fairless: And why is that?
Robert Leonard: The first part isn’t a quote or an idea that I came up with myself. I’ve heard quite a few different people talk about it… But I think it’s so important, because a lot of people don’t invest, because they can’t afford their local area. Like you said, you were in New York City, I’m in Boston… We couldn’t. So technology I think has completely changed how real estate investing can be done, and made it more accessible than ever to invest long-distance.
I also think it’s important for people to not go big on their first deal, because I think that keeps a lot of people from getting started. I love the idea of going big and having massive goals, but when it comes to investing in real estate, especially for new investors, I think it’s important to start with something small. Similar to what I did, start with something that you could cover the mortgage if you had to, so that that risk is really limited and it’s really mitigated that way. I think that’s a great way to learn the ropes and then scale from there.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Robert Leonard: Let’s do it!
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve recently read?
Robert Leonard: Virtual Freedom, by Chris Ducker.
Joe Fairless: What’s a resource that you use in your business, that you think would be helpful for others to check it out as well?
Robert Leonard: If you’re interested in long-distance investing, I think a great resource is a software platform that I’ve created. It’s called [unintelligible [00:20:49].06] It allows you to find the demographic data very easily on 6,000 cities across the U.S.
Joe Fairless: And how can someone get access to that or learn more about it?
Robert Leonard: Just go to wiserei.com.
Joe Fairless: What’s the best ever way you like to give back to the community?
Robert Leonard: The best ever way I like to give back is I like to help new investors get started, and I really like helping younger students to learn about personal finance and money, and help fill the gaps that isn’t covered by traditional curriculums.
Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?
Robert Leonard: The best ever place to reach me is probably on Instagram. My username is Robertattip, or as you mentioned at the beginning of the show, you could check out my two podcasts, Millennial Investing and The Real Estate Investing.
Joe Fairless: Well, Robert, thank you for being on the show, talking about the six purchases that you’ve made in about three years time, and getting into the details of each of those… The financing, the numbers for purchase price, the rents, and how you’ve built your portfolio and how it’s progressed, from the first condo at 5% down, and using your own money and your experience as a loan office while you were in college, working at a local bank, to then doing a live-and-flip, to then researching out a state… And then, once you identified a market, then you bring on a partner, and now you two are buying deals.
It’s interesting to hear how you’ve progressed and the steps that you’ve taken to get to where you’re at, and it certainly could be a roadmap for others… So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Robert Leonard: Thanks for having me, Joe.Follow Me: