Scaling to 38 Units and Retiring at 27 After Building $10K in Passive Income

0:00I saw this property listed and and we're all familiar with the 1% rule, right? Where if the property's listed for $500,000, you would hope that you get $5,000 a month in rent for that property. Now, that's not always realistic, but it's still like a a good guideline so that when I'm looking at properties, I can quickly see which ones are worth looking into more or which ones are just absurdly overpriced where there's no way. So, anyways, I came across this property that was listed for 450 grand and the rents were like $7,200. — Hm.

0:30— So, immediately I'm like that that must be a typo, right? What's that What's going on here? Cuz I didn't come across anything like that and you never do. And reached out, they were reached out to the owners and they explained this model to us and how they had rented it out by the room and they had all these different units within this triplex basically that they converted into different units. And by renting it out by the room, this is the brilliant part of this, I think they were doing something like $500 a month per room. So, but when you multiply that by however many rooms and I must be wrong in the math cuz it added up to $7,200.

1:05— Yeah. — That's how much was the revenue. But then on the flip side for these tenants who are looking for affordable housing in a city, you can't get a better deal than that cuz that was a $500 flat fee that includes utilities, that includes cleaning the common areas, laundry, all that stuff. And everything was furnished. So, people who were just in need of housing and to live cheaply could just move in. It was the easiest process for them. And then on the flip side, we're making tons of money. I mean, way more money than we could ever make from a similar-sized investment.

1:37So, I just felt like it was such a win-win and once they explained the model to me, I think they were having a hard time selling it because some people were just like didn't get what was happening or didn't have the right investor mindset, but I saw a goldmine and I was like, I want this property now. So, we jumped right on that. — Wow. Yeah. Yeah, so I I I've had the founder of PadSplit on my podcast twice now and that just from the first time he came on several years ago to the last time which was like a year ago, that platform has grown tremendously.

2:08I mean, it's it's crazy how many people are adopting that model now because of exactly what you just said. Like as property prices have appreciated, it's really hard to make just the the typical rental model work. And so if you have a lot of bedrooms, it's just like an amazing model. Now, were there issues that came up that as a result of individuals like sharing personal space and common areas and that sort of thing? — Oh, yes, there were. — — I mean, it felt like having 35 adult children.

2:43— — Because you get and so another thing I want to say is this is not the most passive model of owning a rental property, right? When you're renting it out this way, you have all these different tenants, they're sharing common spaces, but at the time, we were far more intent on putting the time in to make as much money as possible to sort of speed up our retirement process. We were fine We were great with this model for a few years. It served the purposes of of giving us a ton of cash flow and a ton of money. And then we eventually sold them because we were like, "Okay, we want something more passive now." But yes, they would call us and they'd be like, "Someone ate my food out of the fridge." And we'd have to go look at the cameras or send out notices or someone's being like someone's doing laundry at midnight and it's keeping me up.

3:28And just some of the complaints were so ridiculous and I was like, "Oh my gosh, what have I gotten myself into?" And you know, there was there were more of tenants on those [clears throat] properties than for a single-family property for example. We had way more problem tenants cuz this was probably a a class C property. — Mhm. — But in the end, it was worth it for us because we were able to make so much money and speed up our retirement timeline. — Yeah. That's a great point. And I think for people listening, it's important to think through that in terms of where you're at in your your journey and what's you know, how much energy you have and what's important to you because generally you're going to see that.

4:05Like the more hands-on strategies like rent by the room, elderly care facilities, short-term rentals, like these are all things that generate outsized cash flow, but they they require more effort up front. And then the other end of the spectrum is like the triple net lease, storage facilities, like these are very I shouldn't say very hands-on, but they're they're pretty hands-off compared to others. But it's going to be a lot lower cash flow. You're going to be sitting on it longer just waiting for your appreciation most likely.

4:36So so yeah, so you got to decide like what's what your goal is and what's important to you, but I think that's a perfect example. Like when you're younger, you've got time, you've got the energy, like it makes sense to build up the cash flow quick that way. And and when I want to circle back around to actually the the off-market strategy and then kind of get into the next phase, but what what did that look like for you? How'd you find that first one? — So initially I was looking on the MLS, but then I started looking through the expired and canceled listings on the MLS, which because I was a realtor at the time I had access to that.

5:15And for those listening, if you are working with a realtor, you can say, "Hey, can you send me all the expired and canceled listings in this radius with you know, with these filters, with these requirements? Send those to me." And then you can either follow up directly or have your realtor follow up with some of those listings because an expired or canceled listing either means they stopped working with an agent and took their property off the market completely or they could be working with a dif- different agent or they could just decide, you know, maybe they want to fix it up a little bit more before trying to sell. They weren't getting the offers they wanted, so they took it off the market to try to fix it up and they're going to re-list it.

5:48So there could be all sorts of reasons, but this is an opportunity for you to then make an offer while it's off market and negotiate a little bit more directly and potentially get a better deal. So that's what had happened with this property. So initially I saw it on the MLS and then I was kind of interested, but it was just priced too high. So I just made a note to check back up on it every couple weeks. And at some point it went off market and I was like, "Now is my time to pounce." So I reached out, I negotiated something off market that was like it was tens of thousands of dollars less than what it was originally listed for.

6:21And it's interesting because the property I'm sitting in and living in now in Denver, Colorado, I actually found it the exact same way. Like exact same story of it was on the market at first and the sellers took it off and I reached out and got a much better deal. But there's so many ways to find properties off market. You can send mailers or letters to probate leads. You can put signs in the neighborhood. You can put up the bandit signs to have people call you. You have to be careful though because there's city ordinances and code restrictions around that. You don't want to get in trouble. But there's a lot of really unique ways that you can find properties that maybe no one else has come across.

6:56So you're not really in competition with the other people. — Absolutely. That's that's such great advice. So when you called them, did you say I saw that this is an expired listing or did you just say, "Hey, have you ever thought about selling your house?" — I said, "Hey, I saw that this was, you know, active on the MLS and now it's it's not. You know, what's going on? Is the seller still interested in selling? Could I still make an offer?" — Oh, okay. — I think I was dealing with the realtor who had it originally listed it. — Got it. Okay. Interesting. Yeah.

7:27Yeah, I work with a lot of people to to help them, you know, through the process of finding deals and it's funny how many people think that you just go to the MLS and you just find a deal and I'm like, there's a lot of like massaging that has to happen on these deals. Like they either sit there for a while, finally they get to a price that makes sense, or you put an offer in that is at the price you need it for, and they say no way, and then they come back 6 months later or a year later, or like you did, you know, you find expired listings. Like, there's there's all these strategies around like working deals.

8:01It's not like they're just going to fall in your lap and be a great deal, or else they probably would have been purchased already. So. — Exactly. I mean, if you do what everyone else is doing, which is looking on the MLS, you're in competition with 90% of all the other investors who are who are looking for a deal. But if you want to find a diamond in the rough, then you have to if you just put in 20% extra effort than what other people are doing, you're going to find good deals. I mean, there's a property up the road that I I walk past every day, that's yard is overgrown, there's a sign posted that it's basically been taken over by the city cuz it's deemed to be vacant.

8:35I've spent like weeks trying to track down the owners, cuz this this is a perfect example of an off-market deal that I have a solution. I don't know what what's happening with the owner of this property, but I want to buy that property cuz it's probably going to be a good fixer-upper, and it's not listed. So, that's that's another way, just walk around your neighborhood. — Yeah. Obviously, they don't want it, or it's a nuisance, or something's going on in their life that they can't take care of it. So, it could be a win-win. Yeah, that's a great point. So, I'm curious then, when you started this process in 2017, was the goal to get to about 40 doors, or what did that look like initially, and then how did that evolve over time?

9:16— Okay, so it wasn't about a number of doors, it was about a cash flow number. — Okay. — And so, my ex-husband and I basically looked at our expenses. At the time, we were spending about $6,000 a month, I think, which had grown over time, cuz this was that was like after our super frugal days. — Yeah. — But we were like, okay, I think if we have $10,000 a month, we could comfortably retire on that. Because that covers our 6,000 in expenses, it gives us wiggle room for things like paying for our health insurance, or just other expenses that we might have.

9:48And that was the number that we came up with that we'd be comfortable retiring on. And so when I say cash flow, I mean the profit. I don't mean the revenue of of all the properties that we're taking in. So this is after expenses, we wanted to be netting $10,000 a month. It didn't matter to me how we got there, if we got one huge property and got us there, or if we had 20 single family houses. But that was our goal. And what I am really proud of us for doing is we stuck to that. Once we got to $10,000 a month, I quit my job.

10:20My ex still wanted to keep working, which was fine. He didn't have to, but he he wanted to. And we never we didn't keep moving the goal post, which I think is an easy thing to do when you're sort of building a real estate empire. Because people would say, "Well, Rachel, why aren't you going to have 250 units and make be making a hundred grand a month, or whatever?" And I was like, because this this is my goal, this is what I wanted, this allows us to retire early. And I think some people get carried away by just they they want more and more and more. Or once they get to that point, they think, well, actually this isn't enough.

10:51I would actually be more comfortable and more happy with this number. And there's nothing wrong with like wanting to push yourself and go for more. I'm just happy that we didn't get sort of carried away in that. And we saw it as a means to an end. We never had a dreams of building a huge real estate empire. We wanted to build what we needed to retire, and then we retired, and and basically stopped. — Yeah. That's great. I And I I encourage people to do the exact same thing. Like if you if you haven't set that number, like think through that number, because it holds you accountable, like you said.

11:25Because it's so easy to get those golden handcuffs and say, "Oh yeah, next year, next year, next year, I'll leave my job." And I talk to people all the time I'm asked and I ask him what the goal is and they say more. You know, I just want want to be able to do this so that I can get into bigger deals and then I want to get into bigger deals so I can get into lending and then private equity and then and I'm like so what's the end state? Like where you know, what when when are you finally like happy with the work that you've done and so so it's different for everybody but so so you got to that place which is rare I think compared to you know, when you look across the spectrum of people especially in their 20s getting to a place of replacing their their income.

12:08What did that look like for you then? What like did you feel confident stepping away and then you know, what did you do from there? — No, I did not feel confident with my job because so by then I was making the $75,000 working at a great job. I was a finance analyst. It actually was a career. I feel like I could have continued on and followed like the CFO track for that company at some point. And I was with a team that would my job was engaging. I was challenged. I loved my team.

12:39So I actually had a really great job which not a lot of people can say. This all started because I mean partially started because I was making 30 grand working for a very toxic employer and I remember like — — crying in the bathroom one day looking at myself in the mirror crying in the bathroom and being like I will do anything it takes to never be in this position again and to never feel like I have to trade my time for money working with someone who was emotionally abusing me all day. That was one of my early motivations. So when I got to this job where it was a great job, I was like well am I crazy for quitting this because I saw how I could be making so much money in the future if I stuck with it and I felt like I was walking away from such a good thing.

13:19And so it did take me like 10 months to go through with it once we'd reached that $10,000 a month goal. It it 10 months of me not having the courage, I guess, to to turn my resignation in. And I kind of wish I had just done it right away. I mean, it's not like I I regret it, but I do think a lot of people can get stuck in the one more year syndrome, and not just because they want more, quote unquote, but just because of fear. — Mhm. — Of what? Is it really enough? Am I crazy for giving this up? And so, they they stay for 5 years.

13:52They stay for 10 years, when they're actually completely financially independent and financially secure. So probably if anything, that the people who are the ambitious and smart people who are working towards building this early retirement, probably they should quit sooner rather quit sooner than they think. — Yeah. — At least that's my theory. So yeah, it was very difficult, but one thing that helped me is that I had already written my first book, Money Honey, and it it, to my surprise, took off. It sold really well. It was a self-published book. And when I quit my job, I published my second book, Passive Income, Aggressive Retirement.

14:25And so, I had this passion around helping women with becoming more confident and empowered around their financial futures. So, when I quit my job, I had something that I could go to. I wasn't just trying to run away from something. I actually had something I could transition into, and I think that's one of the difficult things about early retirement is is what next? And that if you have nothing, and you're just staring at a blank canvas, and you don't have any plans for how you're going to spend your time, that can feel very scary. But I had something I was very passionate about that I ended up building a very successful business out of, in teaching women how to invest in real estate.

15:04And I created courses, and I had coaching, and I I did all the things. And for several years, I was very fulfilled by that, and I made way more money, actually, doing that than I would have if I had stayed at the job, ironically. So, it ended up being a great thing. — Yeah. So, you never look back and regretted it. — No, definitely not. I mean, if anything, I should have quit sooner. — Yeah, yeah. Yeah, I it's funny cuz I feel like the same the same way. Looking back at our experience, my wife and I basically stepped away from corporate life in 2021.

15:38And our goal was to get to $8,000 to be able to do that. And it's crazy how quickly our income and net worth grew after that. You know, once you free up 40-plus hours a week, you know, if you're ambitious, like you tend to fill that with not only like a lot more flexibility in your life, but a lot more intentional effort in the areas that that can lead to a lot higher income and bigger businesses and that sort of thing. So, that's that's interesting. Did you Did you continue investing in real estate at that point, or did you basically pour everything into the coaching side of things?

16:14— I poured everything into the Yeah, the courses and the books. I did keep continue I kept investing in syndications at that point. So, around 2020 is when I started investing in real estate syndications, and that's when we sold those boarding houses because at that point we'd hit our goal, and we were like, "Okay, now our goal is to free up more of our time." And so, we were less concerned about the money, and we wanted to sell the things that were a lot more hands-on and more headachey, which were the boarding houses. — Yeah. — And then transition into syndications, which as far as I know, investing in a real estate syndication is the only way to 100% passively own real estate.

16:54Now, there's a lot of pros and cons about syndications that I've learned over the years, but at the time it was a really good way to We didn't make as much money as we made from the boarding houses, but we still made a decent chunk, and it was completely hands-off, which was really great. — Got it. Yeah, that makes sense. Okay. And so, if somebody was to like recreate what you did today and they wanted to start like basically from where where you were at Do you think it's possible to do that today and then is there anything that you would do differently if you were to do it over again today like is there any advice that you'd give based off of where you know our economy AI all the different things that were were were at today as opposed to 2017?

17:43— Oh yeah I mean I have horror story after horror story of being a landlord for so long and dealing with tenants and property managers and contractors so I can definitely share some lessons learned and things that I do differently in terms of if someone can replicate what I did I think so yes not I think so I think confidently yes somebody can. I think it will be harder today and it's not because you can't find good properties or or that necessarily it's more about the interest rates because when and I I will say that I think my first property my first duplex in 2017 though it was still like a five or five and a half percent interest rate and I still made that deal work but then some of my other properties were closer to 3% and that was a huge help because the mortgage payment is so much smaller and especially when you're looking at a property that's $500,000 a

18:323% interest rate versus a 6% interest rate actually makes an enormous difference financially. So I I think someone can replicate it I just think it might be a little bit harder to find deals that are as good that are going to cash flow as much I think finding deals that will positively cash flow absolutely doable maybe just not to the level that we were doing in 2017 so hopefully that's like a fair and reasonable response for that.