JF1366: 10 Months, 6 Houses, $240k Cash, Frugal Service Member & Real Estate Investor, Rich Carey

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Rich is in the military, currently stationed in South Korea. He has always been a big Dave Ramsey fan so his approach to real estate investing is a little less typical. Rich likes to buy his properties all cash, he has no debt to his name. This is a strategy that has worked well for him and gives him peace of mind. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Rich Carey. How are you doing, Rich?

Rich Carey: I’m doing pretty good. How are you doing?

Joe Fairless: I’m doing pretty good, and… Good morning! What time is it in South Korea?

Rich Carey: It’s 6: 30 in the morning here.

Joe Fairless: Well, you were in the military, so that’s not even early for you, is it?

Rich Carey: Not bad at all.

Joe Fairless: Well, first off, thank you for what you do for everyone who is in the United States and able to do things that we do because of you and your colleagues. A little bit about Rich in addition to being in the military – he has purchased 20 rental properties with cash and flipped several houses. He paid off a $280,000 mortgage in six years, and you can say hi to him at his company’s website, which is in the show notes page.

With that being said, Rich, will you give the Best Ever listeners a little bit more about your background and your current focus?

Rich Carey: Sure. So I’m in the military, and I started my military career off — I started off first in Guam, which is kind of a small island out in the middle of nowhere. I wanted to buy a property as soon as I could, but buying when I was in Guam really wasn’t a good idea, so my second station was Alexandria, Virginia, which is near DC. I bought a townhouse there. That ended up becoming a rental property when I moved away, and I ended up paying that off in about six years.

As I moved around every 2-3 years, I kept trying to figure out different things I could do with real estate from different locations I was living. Eventually, I ended up in Montgomery, Alabama, and kind of realized that that was a great market for buy and hold rentals. While I was there for 10 months, I purchased six rental properties with cash, and then when I ended up leaving, I continued to buy from overseas, because I was in Germany next, and I built that portfolio up to what is today 20 properties.

Joe Fairless: Wow. Congratulations on that.

Rich Carey: Well, thank you.

Joe Fairless: The first house you bought was a townhouse… Why did you pay that off?

Rich Carey: Okay, so I was one of those sort of Dave Ramsey people at the time, and you probably bumped into us once in a while… I’ve always been kind of one of those frugal savers, and kind of invest well, save well, and get rid of all your debt; I’ve always been kind of one of those people, adverse to debt, which obviously can be a little bit strange for real estate investors, who tend to enjoy debt, or even depend on debt.

So when I bought the house for $280,000 and my wife was kind of like “Let’s pay it off as fast as we can”, at first I thought that was crazy. Then I read one of Dave Ramsey’s books, “The Total Money Makeover”, and it had all these steps about paying off debt, and I’m kind of like “Well, I’ve already done all these steps” and doing a great job. One of them was “Pay off your mortgage.” At first I thought that was kind of crazy, but then when I thought about it, it really was in line with the way that I feel about risk and I feel about investing. It sounded great to us, so we went ahead and did it. It took us about six years.

Joe Fairless: You’ve got 20 rental properties… Do you have debt on those 20?

Rich Carey: I do not, no.

Joe Fairless: All cash, all free and clear?

Rich Carey: Yes, they’re all paid off.

Joe Fairless: Where did you come up with the money to buy six properties in Montgomery, Alabama in ten months?

Rich Carey: That point in my career – that was 2013. I had already been in the military for 13 years. At that point my primary residence – that townhouse –  was already paid off, so at that point I had been sort of pretty much getting all my rent, and that was all pure income, minus just my expenses. I was a big saver and a big investor, and just putting away as much money as I could.

The first property that I bought in Montgomery, Alabama was a house that I bought for $30,000. I was used to buying houses in DC, and I flipped houses in DC, where my down payments were $80,000… So to buy a house for $30,000 was nothing to me. In fact, the idea of financing that seemed kind of absurd to me. So I just paid cash for that.

That house needed a little more work. I ended up putting about 15k into that. It’s actually more than I needed to put into it; it was a lot of inexperience involved there… But $45,000 – said and done, and it rented out for about $800/month. It ended up being a good investment.

Joe Fairless: The other homes, what would you say the average purchase price is? And I’ll be specific – within those six that you bought in that 10-month frame.

Rich Carey: With those six I think the average was about 40k. That was just a really good timeframe. It was 2013-2014, and the prices were great. I didn’t know they were great; you kind of don’t sometimes realize it’s going on when you’re actually living it… So from my opinion, I was actually being conservative; I could have bought a lot faster. I didn’t really know what was going on, I didn’t know if I’d end up losing my shirt on these houses. So I bought six with cash while I was there, probably for about an average of maybe a little less than the 40k.

Joe Fairless: So that’s ten months, all-cash, 240k. From what I know about the military — my brother is in the military, and perhaps he’s not in the right branch, but I don’t think $240,000 is a ten-month salary in the military… So still, I’m just trying to figure out how you were able to do that.

Rich Carey: Yeah. Again, I’m somebody who — me and my wife have been living very frugal lifestyles since we came into the military. Again, when we bought that house in 2003…

Joe Fairless: She’s in the military too?

Rich Carey: She’s not, no. In fact, she wasn’t working, so we’ve done this all on my salary. But we had the goal of paying off that house as quick as we could, so from 2003 to 2009, we got the house paid off. Then once it was paid off in 2009, all the rent coming in from that house, which was about $2,400/month, now that’s all becoming savings. On top of that, I’m taking all the extra money I can from my paycheck and I’m also throwing that into investments, just putting that into a savings account.

Then we haven’t talked about this yet, but another thing that I was doing as well was I was flipping houses with a partner. I flipped about eight houses while living in Japan. And really, all I was doing in this deal was I was financing these houses. So I was basically getting the mortgages, I’d put the houses under contract and buy them, and then I had a partner who was actually in DC that was doing the flip, and we would sell them and we’d split the profits 50/50. That also built up some of the money we ended up using to purchase these houses in the future.

Joe Fairless: There’s the missing piece of the puzzle. Okay. How much did you think you made flipping houses?

Rich Carey: I probably made about $60,000 flipping houses, so it wasn’t an absurd amount of money… But certainly it was of help. Now, one thing I had done since 2000 which I think did well was I was somebody who was always putting the money that I had into the S&P 500 index fund, and just kind of like letting it sit there and build… And I have been doing that even throughout the time that I was paying my property off. So about the time that I was going to buy houses, I was taking money out of the stock market and just like selling it, and then using that to purchase these properties.

Also, what I did at one point – I don’t own the house in DC anymore, so what I did was I sold that house that I bought for 280k, I sold that for 400k. So one house sold in DC buys 10 houses in Montgomery, Alabama.

Joe Fairless: Did you sell that prior to making the run on those six homes?

Rich Carey: I sold that actually in 2016. So I’ve probably sold that at about the time I had about 12 of the homes. That kind of allowed me to go quickly from 12 to 20.

Joe Fairless: Got it. So you were just basically pinching pennies for 13 years prior to jumping into this?

Rich Carey: Yes, and I could talk more about that. We’re the kind of people that like — we didn’t buy nice furniture, we didn’t take fancy vacations, we didn’t buy new cars, we had old, used cars, we kind of liked the old, used clothes, the old, used IKEA furniture… We pinched pennies. When friends of ours were going out to dinners in Washington DC and getting nice appetizers and going out to eat on Fridays and Saturdays and spending a lot of money, we were eating at home. We were just the kind of people that were more concerned about putting our money aside for our future than we were about current consumption and keeping up with the Joneses.

And then kind of realizing around the 12, 13 year point of our careers that money had kind of snowballed, and it started to feel kind of substantial.

Obviously, I’m at the point now where I’m already financially independent. I haven’t even got my military retirement yet. When I do retire, at the 20 year point, which is two years from now, I’ll have a very comfortable retirement.

Joe Fairless: The property that you sold in Virginia – you bought it for 280k, sold it for 400k… How much did you put into it?

Rich Carey: As far as like remodeling and stuff like that?

Joe Fairless: Yeah.

Rich Carey: Not very much. I remember redoing the driveway, I remember redoing two bathrooms… Nothing substantial enough to really make a note of.

Joe Fairless: Got it. Less than 5k. Why sell that, versus get a line of credit — oh, never mind… Debt… [laughs] I’ve just bit my tongue; I know the answer why with you. Got it…

Rich Carey: The thing about me is I really enjoy not having any of this debt, and it’s nice having all this cashflow come in without any debt that I have to pay, especially with the idea of coming up on retirement in the military. But that doesn’t mean that it’s something that I would never do. I’m actually exploring with some partners getting into a 40-unit apartment building in Montgomery, Alabama right now. The numbers look like they might work, and it’s something that I might do; I might have to go into debt to do that.

It’s something I might do… I have really enjoyed being debt-free, but I’m not that kind of person that’s gonna tell everybody else “Hey, nobody should go into debt. That’s no way to build wealth.” I do realize that using debt in a responsible way is a valid way to build wealth. But I’ve really enjoyed the peace of mind of not having any debt. It’s something that has worked for me and my career.

And just as I’ve kind of pointed out with the prices of the houses in Montgomery, Alabama, I actually did finance one of them, almost as an experiment, and it’s kind of like “Well, I don’t really know why I financed that, because I’ve got the cash to pay this off.” I went ahead and paid it off a few months later. Then I realized how much money I had spent, and the costs of financing it.

So it just didn’t work out to finance houses at that price, in my opinion. If those houses had been $300,000 each, likely I would have financed them.

Joe Fairless: For a $30,000 house, did you go with a local lender on that?

Rich Carey: The one that I financed I think was like $45,000, and it was a local lender, it was a small bank. I financed it, and the thing that I realized was that the costs involved in getting the loan are the same as the costs involved in getting a $400,000 loan. There isn’t a huge difference. So obviously, having 20 small loans like that could eat into your bottom line a little bit.

Joe Fairless: When you think about the larger apartment building that you are considering, how will you sleep at night having a very large loan?

Rich Carey: That’s true… I think it’s because I already have a large portion of my portfolio that’s paid off, and then to know that I could pay a couple hundred thousand dollars and use that towards my share of an apartment building that would be financed in a separate LLC – that down payment would be tied to my properties, and that kind of scares me. But knowing that I’ve got two more years of still working in the military, and I’ve got substantial money coming in from my rental properties, I kind of feel like I have a lot of margin for error.

I know that if I bought this property, I’d find out the next six months to a year that things didn’t go the way I thought they would, I’d find out. And to be quite honest, if I had to, I guess I would just work past the 20-year point to make up for a mistake in a rental property. And if this particular property went well, it could almost double what I’ve done so far in my career, and it could be massive. So I guess it’s also a risk worth taking.

I think that you’ve probably talked with people a lot about these multifamilies, but I’ve never dealt with those before. Once you start you getting into multifamilies, there’s some serious money and some cashflow to be made.

Joe Fairless: Yes, there is, that’s for sure. What I’d like to talk to you about is the market selection. The 20-units that you have – are they all in Montgomery, Alabama?

Rich Carey: Yes, they’re all in Montgomery, Alabama. The reason I sold the house in Alexandria, Virginia was I realized it wasn’t making very much money as a rental. Kind of in a high cost of living market, and if you’re renting it out, you’re just not making that much. You’re making 2%-3% ROI probably.

When I got to Montgomery, Alabama, I realized that I was probably making more than 10%, and it was just a much, much better market. My second house I bought for $45,000, and it was move-in ready, and I rented it out for $900 right away. We’re talking about a much, much better rental market there, so I just stuck there.

Joe Fairless: From what I can tell, risk-adverse and being very conservative, how do you reconcile having all of your properties in one market?

Rich Carey: That’s a good question. I think one of the main things is I’ve always been looking, ever since I left, and I’ve sort of got to the point where I’ve started to meet lots of other real estate investors, being involved in some different conferences, and different websites, even podcasts… I’ve always been looking for a better location, and I’ve always been looking for comparable or better deals in different cities, and I’ve just been unable to see anything that from my perspective came close financially or gave me the comfort level of what I have in Montgomery, Alabama… Because I also have a real estate agent that I trust, I also have a property management company that I trust and that we’ve done very well together, and that I’ve found a way to work with even though I keep moving to different parts of the world every couple of years.

So I can’t find a way to duplicate that anywhere else very easily, and I feel like the easiest thing to do is just keep investing in that same location, especially when the numbers work out for me.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Rich Carey: I think — and again, this may be different than what I think you probably hear from a lot of other people, but a lot of people will be like “Hey, I’m brand new, I’m starting out, maybe I’m in debt, I don’t have a lot of money, and I really wanna start investing. What should I do? How do I get started?”, and what I would tell them would usually take the wind out of their sails; I usually tell them “What I think you should do first is probably pay off some of that debt. Get yourself in a financial position where you’re investing from a financial place where you’re a little bit stronger.”

So get rid of that debt, save up a 20% down payment, and buy that first property. That’s kind of how I like to approach investing for a brand new investor – you should go into your first deal from a financial business strength, having your loans paid off and saving up a down payment, and then go in and get a more traditional loan where you actually have 20% down and the bank’s happy with you and not charging [unintelligible [00:17:19].17] then go from there. If it works out, then go onto your second deal. That’s my advice.

Joe Fairless: Why wouldn’t the advice be instead of you suggesting 20% down, why wouldn’t it be pay all cash?

Rich Carey: The thing is when I first realized that I have like 10-15 properties that I paid all-cash for, and I kind of thought like “Wow, this is really cool, everybody should do this”, the truth is I talked to a lot of other people and I got a lot of research and I ran all the numbers, and the truth is financially that isn’t the fastest way to build up wealth. Even from a conservative standpoint, if you are conservatively using debt in a smart manner with at least 20% down and you have a mortgage, and you’re buying properties, and the property levels don’t fluctuate too much, and that property was cash-flowing decently and you went ahead and bought a second property for 20% down, and you kind of did that over a long period of time, versus what I did with cash – if you were to project those two things out into the future, in almost all cases you would have far more wealth in the situation where you used debt to do so.

So I would hesitate to recommend to everybody “Never use debt to invest in real estate.” I would just say that you have to decide what level of debt you’re comfortable with.

Joe Fairless: I appreciate that explanation. That makes a whole lot of sense. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Rich Carey: Let’s do it, yeah.

Joe Fairless: Alright, let’s do it! First, a quick word from our Best Ever partners.

Break: [[00:18:57].28] to [[00:19:41].03]

Joe Fairless: Rich, what’s the best ever book you’ve read?

Rich Carey: Okay, it’s called Fooled By Randomness. I don’t know if you’ve heard this one before on your show.

Joe Fairless: No, I haven’t.

Rich Carey: This is by Nassim Taleb. It’s an investing book, and basically he talks about the role that luck and probability and human error and risk plays in our lives, and how most people I think underestimate it or tend to over-estimate their skill level, versus luck. It probably comes most into play when you’re talking about your ability to pick investments, or your trust in your financial manager’s ability to invest on your behalf.

He’s kind of very down on, I guess you could Wall Street in general, but I love it. I think it changed my way that I look at the stock market and Wall Street. It’s called Fooled By Randomness, and I recommend it for anybody that likes money, which is probably most people.

Joe Fairless: Definitely most people listening to this podcast. What’s the best ever deal you’ve done?

Rich Carey: The best ever deal I’ve done – I think I’ve kind of alluded to it earlier. I really thought the first ever deal that I did in Montgomery was one of the toughest. Luckily, I didn’t give up; I kept going. The second deal that I did that was one of the best – I found a property that I got for 45k, and it was actually move-in ready, I didn’t even have to vacuum. It was a 4-bedroom, 2-bath, which usually I go for 3-bedroom, 2-baths… I rented it out fo  $900/month. So $45,000 is what I bought it for, and I rented it out for $900/month, and it’s been a great property.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Rich Carey: The house that I bought first in Montgomery, Alabama. Lots of inexperience. I just kind of went for it… I knew some other people that were investing in Montgomery, Alabama and they helped me get started. But I went and bought that first property for $30,000, and it needed a lot of work. I got an inspection done on it, and I kind of noticed some things that were wrong.

But once the house closed, I noticed that there was a big pile of trash in the middle of the living room, and when I removed all of the trash, I realized that there was kind of like a huge — almost like a camel hump in the middle of the living room. The people who had sold the house had somehow used trash to cover up the fact that something was pushing in the middle room up into the air almost two feet.

What ended up happening – and it took me several weeks to figure out – was that there was a tree root that was growing up into the middle of the living room.

Joe Fairless: Oh, my gosh.

Rich Carey: Yeah. So honestly it was just not having a very good inspector and not doing a very good job walking around the house. There was a very substantial problem with the house that I just didn’t notice, and neither did anybody else.

I had estimates that were talking about 10k, 15k to fix, totally freaking me out. After spending a couple of weeks going through lots and lots of different people, I finally found somebody that fixed it for about $1,000, so he saved the day.

Joe Fairless: What did they do for 1k that others were saying would take 10k?

Rich Carey: [laughs] He was a concrete guy, and he was the first person that actually was kind of like “I don’t really know what we’re dealing with here”, and he just pulled the carpet away and got a sledgehammer out and started smashing at the ground. I was kind of like “What are you doing?” And then he started throwing the concrete out of the way and he saw a big tree root. He was like, “Oh, it’s a tree root. I’ll pull this tree root out, I’ll repour this area a couple inches higher, and I’ll charge you $1,000.” I was like “Oh, okay. Thank God.”

That was after about seven or eight other people had come in and without actually knowing what was wrong giving me much, much higher estimates of what it would cost to fix.

Joe Fairless: Best ever way you like to give back?

Rich Carey: For me, I’m in the military, and what I’ve been doing is I’m trying to teach people in the military how to responsibly invest and purchase houses. I’m doing that through my website, and also just talking to people. What people in the military do a lot is they get this idea that they should buy a house at every location they end up in, and that doesn’t always work out for people in the military, because you shouldn’t necessarily buy a house in San Diego, and then Honolulu, and then Washington DC, because when you leave, you usually end up losing a lot of money, because it becomes a bad rental property. So I’m really trying to educate on not just real estate – that’s my focus – but also on responsible saving and investing.

Joe Fairless: What’s the best ever way the Best Ever listeners can get in touch with you?

Rich Carey: My website is called RichOnMoney.com. You can go there and take a look around. And if people wanna reach out to me, e-mail me at RichCarey@gmail.com. I would love to hear from your listeners.

Joe Fairless: I’m sure you’ll be hearing from some listeners. I really enjoyed learning about how you and your wife got to where you’re at by taking a fiscally responsible and conservative approach, saving most of the money that you’ve been making, then also applying that to investing, saving it, doing some stuff on the side, and then saving up. Now you have 20 properties, all debt-free, and are looking to continue to scale… And ruin your track record – now you’re looking for debt, but that’s okay… [laughs]

Rich Carey: Yeah, we’ll see.

Joe Fairless: You’re at a different stage, certainly. Thanks for getting into the case studies of the properties. I’m really grateful you were on the show. Thanks again for what you do, and looking forward to staying in touch, and talk to you soon. I hope you have a best ever day!

Rich Carey: Thanks for having me on, I really appreciate it.