ITF 1 | Financial Independence

 

In today’s episode, the man himself, Craig Curelop, author of The House Hacking Strategy, talks about his journey and how he was introduced to Financial Independence and Real Estate Investing. Craig worked for BP and is an expert in the Denver market.

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Craig Curelop Talks About How He Found FI And REI

This is the FI Team with Craig Curelop aka The Fi Guy and my buddy Nick Monge here. We’re here to talk to you all about financial independence and real estate investing. We’re super excited right now because this is our first real episode. Before we got super confident to bring other special guests in the show, we figured that Nick and I would take the first two episodes and talk about me for the first one, and we’ll talk about Nick for episode number two to get a feel for this thing and we can introduce ourselves. Without further ado, I’m going to let Nick take over because he’s going to start asking me the questions and hopefully, you get to learn a little bit about me during this episode.

I’m super excited. Let’s go ahead and jump right into it. Craig, how did you get into financial independence? What spiked your interest? How did you get into this field?

It all started back when I was living in California. I’m living a pretty good life by most means. I was making $115,000 a year, living in Silicon Valley, working for a venture capital firm. I had a great group of friends. I lived in a great apartment. You might think I had a pretty cushy lifestyle. Something was missing and I wasn’t sure what that was. I was like, “I do not want to be working 100, 60, 70, 80 or 90-hour weeks for the rest of my life.” I look at the people around me and there are people in their 30s, 40s and their 50s, a few feet down the hall doing the same thing that I’m doing but making a little bit more money than me.

I figured, “This is not what life was meant to be like.” The straw that broke the camel’s back for me was when I and my girlfriend went down to Big Sur. If you don’t know what Big Sur is, it’s this beautiful landscape in California along the coast. You’ve got the mountains on your east, the ocean and the beach on your west side of the road. It’s an incredible no-service experience.

We had that weekend and it was great. It’s super refreshing, but that Sunday night, I got an email from my boss. He told me that, “Craig, we have to get this memo out by Monday morning, 8:00 AM Eastern time, which is 5:00 AM Pacific. That meant I had to do this memo on Sunday night. He didn’t know this but this was also the last night I was going to spend with my girlfriend because we were both moving away in a few days.

I was upset and she was upset. As I was working on this, I was like, “Is this what the rest of my life going to be like? This is not what I want.” I decided I needed to figure out a better way. I read Tim Ferriss’s 4-Hour Workweek and figured out, “I need to pass the stream of recurring income. How do I do that?” Being in Silicon Valley, I would think of startup idea after startup idea, all of which were stupid ideas and then I fell upon real estate. I’m like, “You can own a property. They pay you rent every month. That’s pretty passive.”

A lot of people do it. I don’t need to reinvent the wheel. I don’t need to be Mark Zuckerberg or Steve Jobs. I can be this little no-name guy that has a lot of wealth that can produce passive income and live the life that I want to live. I got on BiggerPockets, started listening to their webinars, reading their books, listening to their podcasts, and then I was hooked. I said, “I had my mind set on financial independence in real estate investing.”

I remember you talking about the whole California thing. It’s such a cool story. It’s crazy how people down the hall can be making a little bit more and you have no idea what it is. Your boss or something as little as that can be such a big interference with your life. It throws you off. It’s a good point there.

Things start working for you the second time around. Click To Tweet

If you continue with the same path, your boss is who you are going to be in 5 to 10 years. If you don’t want to be like your boss, you have to get out. That was what I realized. I was like, “I got to get out of there and start making some big moves.”

When you got here to Denver, how did everything start for you? Can you explain to me your first deal? I know you got into real estate but explain to me the first deal and how you went about that deal.

After discovering this whole financial independence thing, it was probably August of 2016 when I discovered all of this. I moved to Denver in March of 2017. I had about six months of time where I was doing research, hating my life at my old job, but then I found a job opening at BiggerPockets. I applied for the job there. They somehow granted me the position and I’m very grateful for that. That’s why I picked up and moved to Denver. It was a no-brainer. I started working there in April 2017.

In June 2017, I closed on my first deal that was an up-down duplex. Many people may already know this story, but I rent out the top. I lived in the bottom. I Airbnb out my bedroom. I lived in the living room behind a cardboard box and a curtain for a whole year on a futon. That’s all I needed. I was making $1,100 a month over my mortgage while living there for free. It was a pretty good deal and it was the stepping stone that got me to where I am now.

We’ll go deep into that deal a little bit later but to let you know that $1,100 a month in savings, that first deal, no one is going to retire on $1,100 a month, but that was the foundation that got me into my second deal. The power of house hacking is being able to do it year after year, not necessarily getting the best deal and being the most comfortable while doing it.

In 2018, I got my second property. This one was a five-bed, two-bath, about 10 miles north of Denver. I decided to live in my own bedroom this time and rent out the other four rooms. At this point, the other four rooms were renting out for $3,100. My mortgage was $2,000. I was cashflowing $1,100 a month while living for free. I had rented out my old unit and now that saving is doubled. Now I’m saving about $2,000 a month for my rental income. It’s not super scalable because you can only house hack once a year. In the beginning, you only want to buy probably one property a year because you’re so new and you’re just getting used to it.

As you get more comfortable, you’re going to get more money, and then you’re going to start doing more deals per year. I kept doing it. Exactly a year later, I bought my third one. This one was a six-bed, three-bath. The top is a three-bed, two-bath, which I live in and I rent down the other two rooms. The bottom was an Airbnb but because of all this COVID-19 stuff, I transitioned it into a full-time rental. Now that’s cashflowing me about $1,000 a month. Overall, it’s not a bad deal.

I see house hacking as a compounding effect. The first deal isn’t going to make you rich but you’re living for free for the most part. Sometimes you got to pay a little bit less than your mortgage. As you continue throughout year by year and you’re buying a new property, the cashflow is only going to grow. It’s a great foundation and strategy. Honestly, anybody that’s getting into real estate investing, it’s a great spot to start.

ITF 1 | Financial Independence
The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich

Every real estate investor that I know has started house hacking. Brandon, David Greene, Scott Trench started doing it. All the big BiggerPockets guys pretty much have house hacked. It’s not something you do forever. It’s a 4 or 5-year thing. You just do it to eliminate your largest expense, which is your living expense, while you can grow your wealth. It’s such a nitrous boost to achieving financial independence into building your net worth and then at some point, you scale back.

What are your future plans? When do you not want to be living in the same house? Is there going to be a point in the future where you don’t want to be living in the same house as somebody else? Can you talk about that a little bit?

I’m getting close to getting there. I’ll probably do at least one more house hack. I don’t know if I’ll do rent by the room or if I’ll do a duplex, but I’m a little bit more flexible now because I’ve got enough passive income from my other properties where my options are a little bit more open. I don’t need the biggest cashflowing property. I talk about that comfort continuum in The House Hacking Strategy, which is the book I wrote for BiggerPockets.

I’m transitioning a little bit closer to the comfort side and a little bit farther from the profit side, but I’m okay with that because I’ve already done the profitable side of things. I’ll probably do 1 or 2 more house hacks. When it stops making sense and my life goes in a different direction, that is when I’m going to stop. I like to have the option of stopping rather than needing to do this, needing to work or whatever it is.

Other than real estate investing, what are other ways that you try to save money? What are things that you do to be frugal or to increase your financial situation? What are some ways that you save money?

The top three expenses of an American’s budget is going to be housing, transportation and food. The housing we talked about. The next one will be transportation. In my first year of house hacking and on this track of financial independence, I cut out my transportation cost as well because I purchased a place that was close to my work. I could walk or bike to work. The walk would take about 30 minutes. The bike would take about eight minutes and I would do that.

While doing that, I would rent out my car on this site called Turo. It’s like Airbnb for car rentals. I was making probably $600 or $700 a month renting out my car, rather than having it sit in my driveway on top of the $1,100 a month that I was making by house hacking. Just there, I have saved 33% of my budget from housing, 17% from transportation, and then you’ve got food.

I was hardcore towards financial independence. I wasn’t drinking and going out to bars. I was rarely going out to restaurants. I would be going to Sprouts and discount, but still very healthy grocery stores in the Denver area on my bicycle. I would be carrying my groceries home a couple of miles and that’s what I did. I even went out and did Checkout 51 and Ibotta to even get reimbursements. I took a picture of my receipt and they would give me $1 for every receipt that I uploaded or something like that. I was making money back on my groceries.

Embrace people and become friends with many. Click To Tweet

I was optimizing every single part of my life that I could at that time because I didn’t have the capital to go ahead and invest in a new deal. I wasn’t comfortable taking on outside investors at that point because I had only done one deal myself. I hadn’t even gone through a rehab myself. I didn’t want to deal with other people’s money before I did it myself. That’s what I was doing for my first year. I was saving a good amount of money. I was able to save up and get that second house hack because that’s when things start working for you. It’s that number two.

That’s some dedication right there.

I used to be perfect. I used to wake up early every day. I would do my miracle morning every morning, go to the grocery shop on my bike. I would never take the car out. Any waking moment, I would be reading and sucking up knowledge. Now I maybe have a piece of chocolate every so often or whatever. I have a beer here and there.

I know that you graduated from BiggerPockets. At what point did that happen? When did you feel comfortable enough to graduate from your W-2 job?

We call it graduate. Graduate and quit are what it sounded like at this point, but quitting sounds so bad. I don’t think there are any bad feelings between me and BiggerPockets. It was just time for me to go. What became the impetus of my “graduating from BiggerPockets” was I knew I had enough passive income to satisfy my expenses.

I’m going to test that because for the next 3 or 4 months, I’m going to take a $0 paycheck and invest my entire paycheck into my 401(k). Effectively, it’s still benefited me. I’m still getting paid and increasing my 401(k), but I’m not able to spend any of that money. I went and said, “What happens to my bank account if I take a zero paycheck for the next three months?” My bank account grew.

I knew I could quit. Also, the real estate agent business was ramping up too. I was helping people get house hacks on their own. That was way more gratifying to me than what I was doing at BiggerPockets. Taking someone through the whole process of a house hack, helping them find a place, run the numbers, get the contractors, finally be done and start generating some income. Now 8 to 12 months later, they’re getting ready for number two and it worked. It’s cool to see that happen and to know that I was part of it rather than when I was working at BiggerPockets, I was helping a lot of people, but it was on a grander scale and less personal. I liked that goody-goody feeling.

I feel the exact same way. I love making those connections, building relationships with people, and helping them each step of the way. I love putting deals together, running numbers and seeing what the potential cashflow could be in a place. It’s awesome and exciting. Now we’re going to jump into the real deal. It is going to be the first deal that Craig has ever done. Explain to us how you went about buying your first property, the details behind it, the financials, the ups and downs, the emotions, and everything you went through. If you could let our readers know how that went and the challenges that you may have faced?

ITF 1 | Financial Independence
Financial Independence: As you get more comfortable, you’ll get more money and start doing more deals per year.

 

The deal that made my investing for real was that duplex I talked about earlier in the episode. I moved to Denver in April 2017. When I got here, I quickly found a lender and agent by interviewing. I would interview five people a week until I felt comfortable with the ones that I went with. We started looking. I put an offer on the first property that I saw and we went under contract. I wasn’t trying to gain the system, just get a super good deal. Honestly, I just knew I needed to get in. The property was listed for $385,000. Our offer was $335,000 and we got it.

It’s an uptown duplex. I purchased it for $385,000. My mortgage payment on that was about $2,000. It was my monthly payment and that includes mortgage, principal interest, taxes and insurance, and PMI. I used a 3.5% down FHA loan because it was a duplex. I moved into that bottom unit and rented out the top. The top was renting out for $1,750 and the bottom was renting out for $1,100. I was making $2,850 on a $2,000 mortgage. I was cashflowing about $850 a month while living for free. I was living behind a curtain there and I make that be equivalent to about $400 a month. I’ll be cashflowing all in about $1,200 a month on this property before reserves and all of that.

This property was newly renovated. I assumed very little in repairs for CapEx and all that stuff. Based on that, I put aside $250 a month and that covers vacancies. It’s in a great area in Denver. It covers repairs. It’s a pretty new place. I don’t think it’s going to be any repairs anytime soon and CapEx as well. They put on a new roof, water heater and furnace. All that stuff was new.

I know everything will be in serviceable condition for the long term. I thought $250 a month was satisfactory for my reserve number. That leaves us with about $1,000 in total cashflow for that property. That was the first deal. It was a bit of a grind. Living behind the curtain for the first two weeks sucked. It was hard watching people come in, come out, do things in my bed, my bedroom and all that stuff.

At some point, within those two weeks, I learned to embrace it. I became friends with a lot of people. Some of those friends I’m still friends with now. It was a fun experience and story to talk about. I don’t regret doing it. It allowed me to save so much money in that first year that I was able to buy my second one and that gave me the foundation to where I am now.

It didn’t go super smooth. It was a new place, but the second day I moved in, the plumbing in my utility closet backed up. The sewer scope didn’t catch this or whatever, but there was a lot of blockage in the sewer pipe. When the drain drained out to the sewer city line, it all backed up into my unit. That’s a combination of poop, pee and mashed-up food all in my basement apartment

You can imagine what that smells like. Also, don’t forget the water damage and stuff as well. This happened a couple of times. One time I was back home when it happened, I had Airbnbs. I’m like, “What is that smell?” That horrid smell also attracted 50 flies. I would come home from work and there would be the smell of these feces plus 50 flies in my apartment. I remember I would go get Windex, which by the way, Windex is a great fly killer if you ever need to kill mass amounts of flies quickly. I would be spraying them with Windex, and they would die.

I would get frustrated with this. Finally, I got a plumber to come in and clean it out. It was a $2,000 fix, but still a pretty big fix. Some of that I didn’t expect, but I had to take it and stride. This is what you deal with when you invest in real estate. Things like this happen. It’s an emotional roller coaster for the first one, for sure. Ever since then, it’s been pretty smooth sailing. There are some minor things that break here and there but as expected.

There’s no better, tried, and true way to achieve financial independence than real estate. Click To Tweet

The big product that we did on that one was the noise from the top and the bottom were pretty bad. I did this sound deadening project where I took down the ceiling and the bottom unit. I put in rock wool insulation or mineral wool insulation. That’s supposed to be the highest R-value. If you know anything about insulation, the higher the R-value, the more effective it is at blocking sound.

I put that in there with RC sound channels, which are plastic devices that run perpendicular to the joist. As someone walks on the floor, it vibrates through the sound barriers rather than to the joist and into your drywall ceiling. I also put a little bit thicker soundboard drywall on there. Those three things have dampened the sound but it’s still not perfect. I still get some complaints sometimes.

It’s one of those things you have to deal with when you invest in real estate. When I go back, absolutely not. Not to mention that the property has appreciated about $200,000 in almost three years. It’s crazy. When you think about how much equity I have in that now, spending $8,000 or $10,000 total on a couple of repairs is peanuts compared to the $200,000 that I’ve made on the property. That’s the power of real estate. You’re going to have your ups and downs but if you stick through it, you’re going to get through it and experience a lot of wealth in the process.

That’s exactly why you should be putting away a good percentage in CapEx each month. You never know when that sewer line is going to back up, come into your apartment and stink up the place. That’s awful. I couldn’t imagine. The whole Windex thing, it’s funny. My wife does the exact same thing. It’s not the first time I heard that. It’s a good deal, especially to cashflow after CapEx and stuff about $1,000 a month and living for free. It’s awesome. Did you go into this house knowing that you were going to house hack? I’m assuming yes.

Yes, I did.

Did you know that you were going to put up a curtain and live behind it?

Yes.

When that first tenant moved into that same apartment that you were staying in that same unit, how was that experience? Was it super awkward and it got less awkward as time went by? How did that go?

ITF 1 | Financial Independence
The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom

I don’t remember it being awkward, but I do remember people moving in upstairs. I’m hearing them move furniture in, put together furniture, bang pictures into the walls and stuff. It was still a lot of noise. Also, I had Airbnb guests making noise. I was chilling in this 60 square foot thing behind a blackout curtain in a box. I felt like I was going to curl up in a little bawl and cry. The furniture building stopped and the tenants quieted down. It became the new normal for a little while.

The first two weeks were hard, but it’s all about that hedonic adaptation thing where you always regress back to your medium happiness, no matter what happens to you. I had that in mind the whole time. I was like, “I know things are going to get back to normal soon and it’s just for a year.” This one year of sacrifice is going to give me so many more years of freedom later on. That is worth it.

It’s very important for people to start at least learning about real estate at a younger age. We are in our mid to late 20s. It’s a perfect time. I know people that are much younger that are getting into real estate, so it’s an excellent vehicle to achieve financial independence. It’s excellent. I don’t think I can think of anything better to achieve financial independence than real estate.

If you want to achieve financial independence quickly, I don’t see a better, tried and true way than real estate. Some people will argue that stocks are better because there’s no work than landlording and all that stuff but it’ll take you much longer.

We want to get into our Final Four. We’re going to get into our last segment of the show. It’s called the Final Four. We’re going to ask you four different questions. The first one, what book are you reading?

Right now, we are in the midst of COVID-19, which is a disease that is striking the world. I am reading J. Scott’s book, Recession-Proof Real Estate Investing. The BiggerPockets published a little eBook, so I can understand what his strategies are. J is a smart guy and see get his opinion and what thinks about what to do when a downturn. We’re both young and we haven’t invested in a downturn yet. It should be exciting times.

If a new investor came up to you and they were just starting and needed a piece of advice, what is that one piece of advice that you would give them if they’re just starting out in their career?

Just get started. It’s super cliche but honestly, the person who does a lot of research and analysis and waits a year is worse off in most cases than the person who jumps in, does it and learns along the way. That’s from what I’ve seen. As you continue to educate yourself, you’re going to talk yourself out of it until you do it. The more time you have and the time value of money is a big thing. Get started, take action, do something every day that gets you a little bit closer to your goal. Before you know it, you’ll be there.

Next question, what is your why?

My why is pretty tough. My original why was I wanted to travel, spend time with family and friends, be there for my kids as they grow up, be there for my parents as they grow old, all of that stuff. I want to live my life and not be stuck in a cubicle, but that’s the superficial level why. The real reason and you keep digging into that, you always look back at your own childhood and see what you could improve. Ideally, I feel like what makes it a success in life is making your kids have a better life than your parents gave you. If that keeps going through the generations, then you’re going to have a very successful family tree.

My why too is that my parents were 100% there for me the entire time. I have no complaints about the time spent with them, but they were working a lot. They didn’t go to every baseball game. They didn’t attend my graduation. They weren’t there for some of those things. I didn’t care. I understood. I was never mad at them about it but I think, “How could I improve?” I grew up with a pretty good life but making that better would be 100% being there and not having to be like, “We can’t afford that.”

That was also something that always got me irritated, “We can’t afford this and go on this trip. We can’t afford that stuff.” We go to the same vacation spot every single year and we enjoy it. We made the best of it for sure but like, “I want to take my kids on the African Safari or I want to climb Machu Picchu or do stuff like that.” Those memorable things. That’s the big why.

Get started, take action, and do something every day that gets you a little bit closer to your goal. Click To Tweet

The last question I have for you is, is a hotdog a sandwich? Why or why not?

I’ve thought about this question before and I still don’t have a good answer for it. A hotdog is a sandwich. It’s meat between two pieces of bread and you can put condiments on it to make it taste good. What do you think?

I would consider it a sandwich myself. You got it right. It’s two pieces of bread, you got the meat, you can put condiments in it. I’d say it’s a sandwich. Last question, where can people find you? How can people get in touch with you?

You can reach out to me on Instagram. That’s probably the best way. My Instagram handle is @TheFiGuy. You can find me on BiggerPockets as well. You can always message me on there. Those are probably the two best mediums to contact me.

I appreciate you chatting with me. I plan on doing mine next. I’m looking forward to continuing this show, bringing content to readers, and talking about financial independence in real estate. I’m super excited we get to work together on this and I appreciate your time all the time.

Let’s do it. I’m super excited to get this thing started. This is going to be a lot of fun. Hopefully, it brings a lot of value to a lot of people and we’ll see how it goes.

Thank you for talking to me. I’ll talk to you soon.

 

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