ITF 43 | House Hack

 

Travis Watts was in love with the concept of passive income and knew there were great opportunities in real estate so, when the market crashed, he just went for it. Starting with a househack, he tried a variety of different strategies. But in 2016, he decided to transition to real estate syndication, and he has been investing and earning passively ever since.

In this episode, Travis shares his easy—but not simple—formula for the success that he enjoys today. He also breaks down some of the different deals he did, the challenges that he had to face, and the action steps that he took.

Listen to the podcast here


 

OG House Hacker Diversifies With Syndication With Travis Watts

I’m here with my co-host, Zeona McIntyre, AKA, Z-Money. What’s up?

What is up? Nice to see you.

It’s nice to see you as well. Believe it or not, our time is winding down here in Maui. We only have two weeks left. It’s sad. Leaving is hard. I don’t know how you did it.

It was hard. It’s also lovely to be in Colorado. It’s having a split time life to go all to the beautiful places.

Go see the mountains, the beaches, and do whatever you’ve got to do. What’s been up in your life? Anything new and exciting on the agent or rental property front?

We put in 4 offers in 4 days. It’s been busy over here. I’ve got three listings coming up. I’m feeling pretty excited. I’m also super excited about this guest. This is a personal selfish episode because I’m learning a lot and feeling excited. It’s a great one for people because he talks about many different ways that you could use real estate and how he graduated from one step to the next. It gives you a lot of little nuggets on places that you can go and how you want to direct yourself in your real estate career.

I love his journey and how house hacking propelled his journey to where he is now. You’ll find that a lot of people who started with a house hack got into something a little bigger, a little better, a little more scalable but with fewer returns. You graduate until you’re fully passive and financially independent and doing what he’s doing. We don’t want to give too much of a spoiler alert. Why don’t we bring Travis right on the show?

Travis Watts, welcome to the show. How are you doing?

I’m doing great. Thanks for having me.

Thanks so much for being on the show. You look like you’re in a beautiful spot and a nice sunset but it turns out, you’re in JCPenney.

You reminded me. I threw this up before the show. I remember those old-school Olan Mills photos, the classic little happy family picture. I’m not where I am but it looks like it.

Craig and I did a photoshoot before I left Hawaii. It looks like the Andaz Maui to me. If you go out to their pool deck, you can see the infinity pool and then out over the beach and palm trees. I was like, “It looks like a place we were at.”

It does look like that. Maybe that’s similar to where you want to be. Before we get there, let’s start with how you first heard about financial dependence and your story. That was the best transition I ever had.

Congratulations. That was perfect. I’m happy to talk about FI. It’s one of my passion points that I’m thrilled to teach others about. I’ll start with my upbringing and childhood. For the first eighteen years of my life, I was raised by two frugal parents, parents who use coupons on everything. They taught me to always buy the off-brand, “Don’t buy things you don’t need.” Sometimes to the extreme of, “Let’s drive all the way across town to save $0.03 on gas or something.” That was my upbringing.

All the talk of money in my entire life was all about a bit of a scarcity mindset and about personal finance and budgeting. We certainly had some tough times, financially. My parents split when I was five and lived in mobile home parks, the whole deal, single mom, three jobs, and that stuff. That was my humble early beginnings.

In 2006, I was in high school. I’m about to graduate. I was visiting with my dad and he went out to a garage sale and he picked up this book called Rich Dad’s Prophecy. It’s not Rich Dad Poor Dad as everyone attributes it to their gateway into real estate. That was the first financial book and the first financial eye-opening that I ever had to the investing side of the coin and now branching away from personal budget and finance.

To my knowledge, the only takeaway I had was to get out of stocks, don’t be in the stock market. I was still early on so I didn’t have too much to worry about. I made a mental note of that. I didn’t know what else existed besides real estate. Everyone knows you either rent an apartment or you own a home. Everyone understands real estate to a point.

A few years later, coincidentally or maybe you could give Robert Kiyosaki the credit that he penned the market crash, 2009 rolls around. I’m getting out of college at this point. I only did two years. That’s all I could stand of that. I’m back in Colorado and housing goes on sale is what happened. In September 2009, the market was still dropping. We haven’t completely bottomed at least not in Fort Collins, Colorado where I grew up. I bought a 2-bedroom, 1-bath condo.

My first gateway into real estate firsthand was house hacking. That’s how I got started. What happened was I fell in love with the concept of passive income, using leverage, and all the things we all love about real estate. I decided, “I have to make some more money if I’m going to be in this real estate game.” I wasn’t making much at the time. This is my first job out of college making $20,000 a year. I took a job with an oil company. I decided I’m going to give my life away to slaving labor. I worked 100-hour work weeks out in Colorado, Wyoming, and New Mexico. I later worked in Saudi Arabia, overseas, in the Middle East. It was a great income.

I want to clarify one thing quickly. When you were growing up and living that frugal mentality, that was more out of necessity than it was out of intention. Is that right? Were your parents frugal savers and are part of this early FI movement?

Certainly not the FI move. I’m not sure that term existed back then, at least we weren’t aware of it. It was out of necessity. Also, my parents still pride themselves on their frugality, “Look how much I was able to save or whatnot throughout my lifetime.” It’s their claim to fame, so to speak.

Did they do anything with those savings? Was it a matter of like, “Let’s build up the checking account?”

As we fast forward, especially with my dad, he’s now got a lot of single-family rentals. He later jumped into real estate in the investing game. When I was born through age eighteen, it was about the paycheck to paycheck and then building beyond that, to have enough savings to then be able to invest. It later turned into that. To clarify, it was more of a necessity for eighteen years.

A dream job is not all bliss and rainbows. There is always some active involvement to it. Click To Tweet

I love that you brought up the idea of scarcity. That happens to a lot of FI people. You get to this place of like, “I’m being smart with money and I’m being frugal.” You can cross over to that line of being cheap or being afraid and being scarce. I love that you’re bringing that up because that’s something I’m always trying to move towards. It’s like, “How can I be more abundant in my mindset?”

It’s huge. Thank you for highlighting that. It’s important. I talk about this all the time, I’m proud of the frugal and the humble beginnings. However, it is limiting. A simple example, let’s say you make $10,000 a month or something at your job. Even if you’re super frugal, you still got to pay taxes, you still got to have a place to live, you still got to have food, you still got to have insurance, car, phone.

Let’s say you put back $6,000 a month, that’s awesome but you’re also limiting yourself to $6,000 per month. When you flip that to the investing coin, you have unlimited potential. How much could you potentially earn if you get into real estate, you become an investor, and you launch a business? It’s unlimited. I like to now focus a lot more time and energy on that side.

Money flows. If all you’re doing is coming in and stashing it away, you’re going to end up with less. I’ve heard this from multiple different people that are a lot more successful than at least me. They’re like, “Money flows. You come in, you’ve got to spend it, and you’ll make more.” It’s this constant thing of incoming and outgoing even to charities and giving and all that stuff. Don’t be super tight with your money. It’s good to let it flow right. It feels good. You end up with more of it that way.

100%.

At eighteen, you went to college. You only did two years of college. You ended up with a job making over $100,000. How did you do that?

Interesting story. First of all, I didn’t want to go to college. I never wanted to go to college. What happened is I was out in Florida, I wrapped up my high school there. Florida has this program called Bright Futures. If you get a particular GPA, you put in some community service, you do all these things and take your SATs, they’ll pay for the majority if not all of your college if you stay in the state. That was an offer I couldn’t refuse. My parents certainly wanted me to complete college and I thought, “I’ll go at least two years. If I enjoy it, I’ll go four more. If I hate it, I’m out.” The latter is what happened.

I went for a BS degree. It’s not a Bachelor’s of Science, by the way. I was in bands. I was a singer and a drummer. I thought, “Music is my life,” at least it was at the time. I went in for live show production, audio mixing, lighting, and all these different things. That’s what I thought I would do, go to or with bands and all this, which does not require a degree for anybody thinking about that. That’s what I did. After two years, I went up to New York City, did an internship and thought, “Hell no. I’m not doing this.” I fell out of love with that quickly. That’s what happened with college.

I’m curious. Coming out of school, being so young, making $100,000 a year, did that seem like $1 million after seeing how your parents scrapped it together? Maybe that was more than either of them ever made.

I left New York City. I came back to Colorado. I had a buddy and he worked for a call center. He got me a job. and it was $9 an hour, 40-hour workweek. That was my first job. I hated that so much. I fell in love with real estate simultaneously. I said, “Real estate is my passion. It’s what I’m going to be serious about. I have to make more money if I’m going to be serious about this.” This was my mindset at least. I probably applied to 150 jobs. This is 2009, 2010. This is a crappy economy. Nobody is hiring. Everyone is firing and laying off.

I busted through that. I went to a job fair for oil and gas, which was the big thing that was happening out on the front range of Colorado. I sucked up a job that required no college degree. It required 100% life sacrifice and being away from friends, family, out of state, and overseas. I said, “Sign me up. I’ve got no kids and no one to be responsible for but myself.”

To answer your question, I never intended on making that much money. They didn’t tell me I was going to make that much money. It all came from overtime hours, 40 hours straight, 60 hours overtime, plus bonuses, plus per diem. It all adds up. That’s what it resorted to. I worked that job for about six years. I didn’t change my lifestyle from college. I was living on probably $12,000 to $18,000 per year during that time.

What you said right there is you did not change your lifestyle through college and I love that. For anyone listening, if you’re in that state, maybe you’re graduating college or you have graduated, it’s easy when you start making a little bit of money. Even $50,000 or $60,000, it’s a lot more than you’ve probably ever made before. It’s easy to get that nice apartment or splurge and have that lifestyle creep. Stay living like a college student as long as you can. Have roommates or whatever it is. I love that. Z, do you have anything to add there?

I agree. That’s the key for many of us. What I heard you say is that you already had fallen in love with real estate and you already had a plan. The number one thing is to always try to see how you can get to those college students or people right outside of high school and get a book in their hands that will get them inspired or a podcast or something like this. That’s great that you had it because then you have this goal and the money is not there burning a hole in your pocket. You’re like, “This is my plan.”

College isn’t for everyone. I want to clarify something on that point. When I said I never want to go to college, that’s true. It wasn’t because I was academically bad. I had a strong GPA and all this stuff. The frugality was getting to me and I thought, “I am not willing to take on student debt.” I realized what that means for many people. I didn’t want to be in the situation where I get this degree, I have $100,000 in debt, and I’m not doing something I’m passionate about or that I like. That’s what I refuse to do more than anything.

You’re a smart man. I grew up in the traditional American household where you got to go to school. I went to an expensive University, the best one that I could get into, and I graduated with over $90,000 student loan debt. I was in a job that I hated. What you avoided is exactly what I did. I was fortunate enough to be able to pay those off quickly because of real estate and because of all this stuff. I do not wish that burden on anybody.

I didn’t know that about your story. Sorry to push on a wound.

Honestly, I love hearing that you did it right. Don’t get me wrong here, you’re not making me feel any worse. You’ve made some good decisions or at least what seems to be good decisions. You’ve got this job for six years. You’re saving and saving. What happens next? What year are we at now?

The oil fields stuff was in 2010, 2011. I’m working each year. Everything I’m saving, I decided that I’m not going to throw it under the mattress. I’m not going to put it in the bank account. I’m going to get involved with real estate. I didn’t do a ton of mentorship or programs. I did read a few books. I started with house hacking. I then did fix and flips. I then went into vacation rentals.

In 2016, I made a decision that I was going to go into passive investing. I was going to do these real estate syndications as a limited partner. I was going to be partnering with other people on their deals that were bigger and in other markets. I wanted to remove myself from the active game. From 2016, that’s what I am today, I’m a full-time limited partner in multifamily syndications.

I can’t wait to hear about that. That’s the dream. I’m like, “How do I get out of doing anything? I’ll give you my money and you give me my money back.”

The limited partner is a lot of people’s dream job. I wish they taught you that as a kid.

I don’t want to paint a picture that it’s all bliss and rainbows. There is some active involvement in it. It is a capital game. If you don’t have some capital to park away, it may not make sense for you.

Hearing this trajectory that you did, we want to get into your first house hacking. House hacking to flipping to rentals. You probably started with a little bit of money and you got the highest possible return for your money. As that money grew and grew, you had this nest egg. You’re then able to take that larger nest egg, get a lower return, but pretty much remove yourself from the business and have that passive income. Now you can get into that bigger stuff. Is that semi-accurate?

ITF 43 | House Hack
House Hack: Know what you’re wanting to achieve. Know your criteria. It will take some time, some soul searching to come up with this stuff and clarify it.

 

Yeah. My formula was simply to earn as much money as you can earn using your highest and best potential. For me, it was the oilfield and flipping. I ran all these little side businesses that most of them failed but I was doing everything I could to earn $1. I lived on as little as possible for a period of time. I did that for many years. Everyone’s going to be different there. Invest the difference in real estate, that’s what I did. Avoid bad debt, credit card debt, financing cars, and lifestyle creep. I know that sounds easy. It’s easy but it’s not simple, let’s put it that way. That’s what I did. Those were the four steps.

I love how you broke it down so easily. You’re like, “I’ve done this before. Here are my four steps.” Anybody can follow that. Great job.

Take a pen and paper and write down those four steps. Let’s get into your first house hack. It was a different market and different times. I always love to hear that introductory story.

The for-real deal.

The first thing I would point out in full transparency is I was scared and nervous. The first deal I did was nearly all of my money. I was going all-in on a theoretical concept that nobody around me was doing that I had a belief would work. It’s important to recognize that it’s okay to be scared or nervous when you dive into something even today if I’m doing a bigger deal or something new. Let’s back up. This was September 2009.

I was looking at this 2-bed, 1-bath condo in Fort Collins, Colorado, a college town with Colorado State University. That’s where I grew up. I knew the area. I knew the town. A lot of my friends were still going to CSU. I knew what the rental dynamics were, where people were living, what the market rents were. I’m looking at this place that previously sold for $168,000 a couple of years ago before the Great Recession. I picked it up on the MLS, believe it or not, for $95,000.

One thing I knew for certain is that 40% off, give or take, of what I’m buying now. I didn’t know where the market was headed. What if it went down another 40%? That was the unknown. Believe it or not, even at that time, a lot of people were telling me, “Don’t you dare buy right now. It’s a horrible time in the economy. You need to rent and wait on buying.” That was the advice I was getting. I had to go against that. I’m talking about family and friends. It was tough to go against the grain.

One thing that I love that you’re saying is that you looked at what it had previously sold for. A lot of people miss that. I had a great experience with that as well. I remember seeing a property in 2005, right before the crash, that had sold for $98,000. When I found it in 2012, they were selling it for $52,000. When I saw that, I was like, “What are the chances that it can go back up to $98,000? Let me see.” Nowadays, it is worth that. It’s one of those fun things that if it has been there before, oftentimes it can go back there. Keeping that in mind is smart.

100%.

One thing I want to ask too is how did that feel going against everyone that you’ve ever trusted advice? How did you have the cojones, for lack of a better word, to like push forward and go through with that?

I don’t have a good answer for you. The only thing that gave me any certainty was, back to the frugality mindset, I could recognize I’m buying something at 40% off. You can look at history, you can look at what historically happens when recessions hit, things crash and then they recover. I thought, “It could go down more but I’m going to live here too, by the way. This is going to be my owner-occupied house and I need a place to live even if I decide to rent.” There was that component too. I wasn’t just buying stock or something. This was going to be a functional thing for me at the time. Also, the house hack idea.

The other thing I don’t want to leave out in the story is, in 2009, something critical changed with the Obama administration. They decided they’re giving out this first-time homebuyer credit for anyone who’d never purchased the house that they were intending to live in. For this one year, and it may have gone to maybe two years, you didn’t have to pay this back. They first rolled that out where they would give you this credit and then maybe you have to pay it back or something. In 2009, you didn’t.

I was able to get $8,000 from the federal government to buy this house. $95,000, I went 20% down, I went conventional loan, 30-year mortgage, but then I got $8,000 of that back. I put about $20,000 and got $8,000 back. I put $12,000 into this deal. That made it much more reasonable for me because $20,000 was about all I had to my name. That was money I’d saved from 15 and 16 doing landscaping and odd jobs and everything and being frugal. It’s scary but that was a critical note I want to make.

Where did all your money go from all of your $100,000 a year making in the oil fields?

This is before then.

For some reason, I’m ahead.

This is right before I fell in love with real estate. What I did is I thought, “To cushion myself here in this place, I’m going to furnish this.” I furnished this little 2-bed, 1-bath on Craigslist. I remember getting these huge leather sofas for $250 from somebody, it was incredible. I got some killer bargains. I probably put $2,500 into furnishing this place including the spare bedroom. I listed it for rent at $600 per month. I rented that to a college student who was going to Colorado State University. My mortgage payment was about $650 a month. Right out of college, I’m living for $50 bucks a month.

That was the first mind-boggling concept to me that in real estate, you can win in all these different ways, through house hacking, I later found out through flips, I later found out through vacation rentals. There are so many different creative things you can do with it. Unlike a stock, it’s buying and waiting. What I did is I house hacked it in the beginning and for $50 a month, which cut my expenses down. I still wanted to do this again and again. I got the bug almost instantly and got a check every month. That’s the first eye-opener to passive income as well.

You were a house hacker before even that term existed.

I had no idea what that meant. I don’t know if it was a term or not. It was called renting a spare bedroom out.

That term originated from Brandon Turner over at BiggerPockets. He wrote an article in 2013 about how to hack your housing and live for free. He talks about the traditional way of duplex, triplex, or quad. You live in a unit by yourself and rent out the other unit. What you did is exactly a house hack, instead of units you had bedrooms. It’s awesome that you had that. You were living in Fort Collins for $50 a month, which is incredible. You’re paying down your loan, that’s appreciating and all that. I have a question, do you happen to still have that condo or townhouse today?

I don’t. Before our podcast, I went on Zillow. I haven’t looked this house up since I sold it. I was curious because the markets are crazy as everybody knows in 2021. I wanted to see what it was worth. I came up with these four scenarios to paint the picture of why I’m passionate about real estate in general. I don’t care if you’re in multifamily, single-family, house hacking, or whatever.

Here are some numbers to think about. I put $12,000 into that investment. Today, that condo is roughly worth $275,000 in today’s market. If you had $12,000 invested, you’d have made twenty X multiples over twelve years if I hadn’t sold the condo. That’s one way if you did a buy and hold strategy. I always kick myself when I go back and look at this stuff, by the way. I sold a lot of properties and maybe I shouldn’t have.

A long-term rent, today it would probably rent for $1,500 a month. That’s pretty conservative. If you had a $650 mortgage, some assumptions are there about property tax and HOA and everything else, if you could do that, that’s a 52% cash on cash return. That’s another way to look at it if you’re renting it. If you made that a short-term rental, you’d probably clear about $2,500 a month. That’s $30,000 a year as a side income. That’s another way to look at it. If I did the house hack and I was still in it, I would be completely living for free. I’d probably written that spare bedroom at $900 a month and then live in there with a $650 mortgage. A lot of different creative avenues you could take with it. It’s pretty exciting to think about that.

Earn as much money as you can earn using your highest and best potential. Click To Tweet

What’s nuts among all of that is you still put down 12%, 20% minus what the government gave you. The traditional house hack these days is you’re putting down 3% to 5%. You double those returns if you do 3% or 5% down. That’s why house hacking is the most powerful strategy, especially when you’re starting out because you don’t see returns like that consistently in any other asset class across all asset classes.

I wish I had a house hacking course.

House hack number one is over and done with. It’s 2010. Are you moving quickly to the next one? What happens next?

I’ll bullet point some things to consolidate what happened. I ended up moving out of that property. I ended up getting two different roommates to rent there. They were roommates with themselves and I wasn’t living there anymore. That made for a better situation. It was fully furnished. I had two renters. I had above-market rent at that point. It’s still pretty lucrative.

I bought another house out in a town called Henderson, Colorado when I took the oilfield job and house hacked that one. It’s a similar situation. I bought that one for $97,000. I sold it two years later for $215,000. It was a hybrid. It was my owner-occupied place. I did live in it. I house hacked it. I didn’t have to do a lot of renovating to it. The market started coming back and appreciating. That was probably one of my best resales, by the way. I’m not trying to paint the picture that these numbers are always possible. It was off to the races at that point.

Did you intentionally live there for two years for any reason or was it the way life worked?

It panned out that way. I was trying to get more properties. At this point, the market was heating up, getting a little more competitive. I was losing out on bids. I wasn’t willing to go above asking for anything and more people were entering the market, even institutions. I had to get a little more creative on my strategy.

I ended up finding a bank-owned property, it was the third one that I ended up living in. It was a three-bedroom place. I house hacked it with two roommates. I turned the second one into a full-time rental for a little while. I ended up selling it because equity happened. I thought, “I could collect this much per month or I could double my money and get out of it.” I did a lot of turnovers during this time. That’s what led me to do fix and flips, that property and that experience.

You didn’t live there for two years. You owned it for two years.

I lived there for almost two years myself in that property as I looked for the third one.

Did you know about the 2-of-the-last-5 rule where you can sell that property and not pay taxes on it?

I didn’t at that time. It wasn’t until probably the fourth property that I figured this stuff out because someone finally gave me some good advice and said, “Why don’t you find a CPA that specializes in real estate? Otherwise, you’re missing out on all this potential.” Unfortunately, I did not get to take advantage of that in the early days but I did later in all the properties that I owned as an owner-occupied.

Usually, you can go back in your taxes for years and amend things. I’m surprised they didn’t do that for you in that case because you probably could have amended it. That’s a million years ago.

If I remember correctly, what they did is the first property is where I was able to take advantage of in Fort Collins. The second one, I wasn’t. That’s how that went. After that, I used that strategy quite a bit. I was moving every two years after that.

Maybe the tax code has changed over time. They change it every year a little bit.

I’ve switched CPAs a lot. Long story short, I got into more fix and flips at this point because that’s what was happening in the market, a lot more people entering, equity happening. In Colorado, in the Front Range as you well know, from 2010 to 2014, it was getting hot. It’s still hot but it was crazy at that point, in my opinion. I switched strategies doing that.

The problem for me with fix and flips is, one, I didn’t like doing it. Two, I’m not a handyman of any kind. Three, I didn’t have a good team around me. I didn’t have any contractor connections or anything. I was overpaying for a property. I was overpaying for contractors and everything. My margins weren’t great on the flips.

I transitioned to doing some short-term rental stuff out in Denver. From there, I decided between the oilfield job and doing all of this active stuff. It was too much for me to handle. It was becoming a job, which is fine if you like doing it but I didn’t like doing it. That’s where I decided that I need to find a way to be a little more hands-off with real estate. That’s what I did in 2016 as I transitioned.

When did you do your last house hack? Was that in 2013?

Let me explain a hybrid. It’s creative when you’re doing your own active stuff. We bought a house in 2014 in Denver, an old tudor home, 1932 house. The basement was a separate outdoor entrance. It was completely isolated and private for the downstairs. It had a kitchen, a bathroom, and all this stuff. We were experimenting with house hacking. We had some traveling nurses that would stay there for 3 or 4 month periods. We did some Airbnb with it. We ended up selling that house in 2016 because we lived there for about two years. That was the last of the roommates, last to the house hacking, last of the Airbnb, last of the active real estate.

I like that you’re saying that Airbnb is active. In general, people say that real estate is passive. I would say that it is not that passive. If you want to get into passive, go to index funds or syndications. They can be a little more passive. Airbnb, I like to remind people that that’s more hospitality. It’s not like being a traditional landlord. You have to have a different hat that you wear and a different idea about it. If you’re not excited about creating experiences and interacting with guests, you’re probably going to hate it. Thanks for pointing that out.

It’s great to bring it up. I couldn’t agree more. That was the last straw for me when I was thinking, “It’s becoming a job for me. It’s a lot of time.” We’re doing this Airbnb. We had a couple of bad experiences with it and a couple of bad renters. I thought, “I’m done with this. If I don’t need to be doing this, I’m not doing it.” That was the conclusion I came to at that time. Good point.

It’s a great cashflow machine. It’s a great generator there. Craig was talking about house hacking and that’s a great way to get that cashflow going as you’re starting. If you’re moving out and you own a few properties, that’s why people do Airbnb for a certain term. It’s great to do that. Once you have enough, it’s great to move into things like syndications that have more growth. They’re not going to give you that cashflow. If you need the money every month, it’s the wrong strategy for that. Once you advance and you become a little more mature with your investments, it’s a great option.

There are all kinds of models. That’s a generic term that we use in the industry. Syndication could be a new development project. A syndication could be a cashflowing 1980s property. It’s pooling money together to go do some larger deal. I try to find a balance in what I do as an LP, a limited partner. About 50% cashflow of the overall return and about 50% equity upside potential. I like that hybrid mix. Everybody’s different. You could do 100% growth. You could do 100% cashflow.

ITF 43 | House Hack
House Hack: The types of things people choose based off their goals could be worlds apart. So, it’s all up to you and not about anybody else.

 

We should get into syndications here. Before we do, I want to reiterate the whole Airbnb point. You had a certain chunk of passive income at that point, I’m sure. I would be damned if you didn’t but you knew what you were leaving on the table by moving off Airbnb. It was a calculated decision. Maybe you had $10,000 or $50,000 passive income and you’re like, “If I sell these and put it here, that $10,000 to $50,000 might be $8,000 or $9,000. My life’s not changed that much but at least I don’t have to manage these damn Airbnbs anymore.”

I made a short video. It’s probably somewhere on YouTube. It’s a theoretical video, by the way. It’s a 15% annualized return doing an active deal. 10% annualized return doing syndication or a passive deal. The question you have to ask yourself is, between that difference of 5%, what dollar amount does that equate to? Is it worth your time at this point to do it?

In my early twenties, I did work for $10 an hour. It was worth my time for a long time to do different active strategies. At a certain point, I recognized that I could make more money elsewhere doing things that I enjoy more. All of a sudden, I’m happy to take a 10% return and give up that 5% upside in lieu of not having to spend my time on it. It’s something to think about.

Can I call you and you tell me what syndications you’re going into? I’m excited about this. Tell us what you do because I want to get on your email list.

It was an interesting journey. Like in 2009 when I first entered real estate, I was a little skeptical and nervous. It was a new concept. Quite frankly, I felt like syndications were a little too good to be true. People were sending me these slide decks, these overviews of investment opportunities. I’m looking at these potential returns, these projections, and I’m thinking, “These are the returns I’m making doing everything myself. I’m active. It takes a lot of my time. You’re telling me that I could potentially get the same return by not doing all of this?” It was intriguing but I was also skeptical.

I was selling a property, it was a flip of mine, and I had some equity there. I thought, “I’m going to try one of these. I’m going to do one. If I get hosed or something, I’ll let it go. It is what it is.” This particular investment was a 300 to 400 unit apartment building that I was a limited partner in. I wanted to give it about six months to make sure this was an actual real thing. A couple of things happen in the six-month period. First of all, distributions came in on a monthly basis. I was getting cashflow and they were hitting their projections. It became a little more real as I got to see that firsthand.

Number two, I joined a pretty substantial-sized investment group in Boulder, Colorado. There were a couple of guys there, they were in their 60s or 70s at this point and they had been full-time limited partners for decades. They had sold some tech companies back in the early ‘90s or late ‘80s. All they do is invest passively. They opened up to me as a mentor of sorts.

They allowed me to dig into their portfolio a little bit. They would explain what investments they’ve made, the good, the bad, the ugly about this. I fell in love with the concept. It was like when you first hear about financial independence or the FI movement. It was something that resonated with me and I thought, “You can be a full-time passive investor in real estate.” Mostly what they invest in is multifamily.

All of that made it all of a sudden real. I’m moving now from the theoretical like the Robert Kiyosaki book in 2006 into the reality, which was 2009 for me and then 2016. It’s a lot of networking, a lot of conferences, a lot of research, a lot of podcasts, a lot of books. I do a lot of a lot actively but passively on the front of doing the deals.

Take me to your leader. I’m here in Boulder, Colorado. I’m ready. I feel the spark. I’m feeling inspired.

I have a question for you. Syndication is an awesome thing. There’s a lot of people doing syndications. It’s fun to own part of an apartment building or whatever it is. Have you ever thought of going the commercial building route where you’re buying these warehouse-type buildings that are already pre-occupied, triple net leases, and those things? It’s pretty passive because they’re handling all the expenses and all the taxes, insurance, and all that. I was curious as to if you weighed that option. What made you decide on the syndication piece over that?

There are a few things that I got uncomfortable with when I was doing a bunch of single-family. I had my entire portfolio in about a 30-mile radius. I had 100% of my equity in one asset class. I had 100% invested all in one state for political risk, for tornado risk, for everything. I got to thinking, “There are some other markets I’d like to be in.” It can be tricky to go buy a single-family home in Miami, Florida, and then live in Colorado and try to manage that remotely. This was my search into the passive.

To answer your question, I looked into a lot of different models but what I wanted most was to find expert teams doing what they enjoy, what they’re passionate about, and what they’re best at. I believe in investing 80% in what you know and understand, first and foremost. Number two, I take 20% of my portfolio now and I do experimental stuff. That’s where what you’re talking about would fall under for me.

I’ve done some self-storage. I’ve done some note lending. I’ve invested in ATMs. I’ve done all these different things, distressed debt, you name it. It’s all fine and good. Some have done incredible. Some have lost money. It’s something I’m not an expert in but I try to find teams who are. For me, multifamily and value-add syndication was the route that I wanted to go and for lifestyle flexibility.

I wanted to have Craig say what triple net leases were because a lot of people won’t know that. It’d be a good one to go over. I want to know some more of your tips on how to identify syndication that is good over something that’s not because that’s the dangerous part. There’s a lot of people out there throwing money together but a lot of people are losing money too.

A triple net lease, NNN might stand for something. What it means is that you own the building and the tenant that you placed in there, it’s a longer-term lease, 5, 7, 10, 20-year lease. They’re going to pay you rent. In the single-family house, out of your rent comes insurance, taxes, repairs and maintenance, capital expenditures. All of those expenses are passed on to the tenant. In this case, that rent that you see on your lease pretty much goes right through to your bottom number if you don’t have any debt on the property.

Let’s say you rent a storage building out for $10,000 a month. It doesn’t matter what insurance is. It doesn’t matter the taxes. All of that goes right through to your bottom line. You take out whatever your debt payment is and that’s your actual cashflow right there. It’s a little bit simpler. Oftentimes, in these triple net leases, they have bump ups in rent every two years. Maybe the rent increases 2% a year. After one year, it’s $10,200 and then it’s $10,400 or whatever it is. That’s how those leases tend to work.

This is what I love about real estate. There are so many cool creative models that are a hybrid between completely passive investment versus being an active investor. It’s like a turnkey property if you want to compare that maybe to a single-family home. Somebody else is going to put a tenant in there and do the lease work and property management. You’re a hybrid. You’re active. You’re passive. It’s in between. There’s nothing wrong with any of this stuff. It’s all that’s right for you. Also, there are publicly-traded REITs, Real Estate Investment Trust, that invest in a triple net. They invest in self-storage, in mobile home parks, in multifamily, they do single-family. The world is your oyster. Whatever works for you.

There are so many different asset classes within real estate that you can invest in. What are your goals? Does your investment help you achieve your goals? Travis, we’re not letting you off the hook because Zeona asked you a good question. How do you pick a syndication?

You nailed it on the head right before you asked me that. Know your goals. Know what you’re wanting to achieve. Know your criteria. How do you know this stuff? Take some time. Take some soul searching. It took me many years to come up with this stuff and clarify it. Let’s talk about criteria. Here’s my approach. First, I define my goal. I want A, B, C, and D. I then define my criteria on what types of investments can help me achieve that goal.

I’ll give you an example of two different types of people. Somebody has a goal of, “I want $20,000 a month passive income so I can switch to part-time work instead of full-time.” They’re an IT professional or something. That’s a vastly different goal that’s going to require vastly different investments versus someone that says, “I want a $3 million net worth so I can retire when I’m 60.” That’s 100% different. The types of things they choose based on those goals could be worlds apart.

It’s all about you. It’s not about me or anybody else. You’ve got to define your goals and then your criteria. Some of my criteria because I live on cashflow today for my investments is I like monthly cashflow, monthly distributions. I like tax-friendly states. I like multifamily between 200 and 600 units. I like landlord-friendly laws. I could go on and on. The point is I have criteria defined. I then go out and I search by networking, by joining groups, by getting on BiggerPockets, all these different things. I find out who, as far as an operator or syndicators, are doing those types of deals. I start a conversation. Call them up, meet them face-to-face, whatever you’ve got to do, whatever works for you.

Over time, you realize it’s a small world. There are not too many folks out there doing this. You start hearing the same names over and over. I always ask fellow LP investors, “Who are you investing with? What’s your experience been? Good, bad, ugly, feel free to share.” I’m happy to do the same, probably not on this podcast publicly but one on one. That’s how I found some groups to work with. That’s how that’s evolved over the years.

That’s amazing. That’s incredible. You don’t have to share this but I want to ask, how much of your money do you have invested? It’s not like $20,000 here and there. A lot of people reading this are going to be a little bit more of a beginner. I wanted to reiterate that the end game is this LP thing. What are the returns that you typically see on some of your cashflowing-type investments?

It’s important to recognize is that it’s okay to be scared or nervous when you dive into something unfamiliar. Click To Tweet

I work with different groups, Joe Fairless, Ashcroft Capital, and all this stuff too. I’m not endorsing any company. I’m not talking about any specific deals with any specific groups. I’ve invested with 36 operators in the industry, in the multifamily space. I’m happy to share from that perspective with that being understood on the disclaimer.

In 2021, the cashflow I received as a limited partner from multifamily syndication is going to be in a range of 6% to 10% annualized. If things go according to plan and that business plan gets executed and we sell the property for more than we paid for it, it doubles at the end. You end up with what’s called an IRR, an Internal Rate of Return of anything from 12% to 20% on average. That’s the typical deal.

To compare that to a house hack, with house hacks, you’re getting returns in the 50%, 60%, 70%, 80%, 100%, because of that low down payment. This is beyond the house hacking game. You’re not going to diversify by having a house hack and having $200,000 into syndication or whatever it is. I want to make that 100% clear.

I was listening to Warren Buffett and Charlie Munger at the Berkshire Hathaway meeting. Somebody asked them about what they think a good return is. They went into the idea that when Warren Buffett first got started, we’re talking about the ‘30s, the ‘40s, way back when, he was making these outstanding returns because he was using a limited amount of capital. Every investment he was making, he was using under $1 million total when he was getting rolling. He’s making 30%, 40% annualized returns.

Now, as big as they are with billions and billions to put to work, you don’t go out and make 60% annualized returns. He’s happy with a 4% to 5% return annualized because of the amount of capital you have to put out there to work. Here’s how I look at it. I mentioned earlier that syndication investing as a limited partner like what I do is a capital-intensive business. It does take some money to make money if you want to put it that way.

Think of it this way. I use what I call the 8% rule. If I could average about an 8% cashflow on an annualized basis, I’m going to live off that income. Do the math. $1 million invested at 8% is $80,000 a year. This is where you start thinking about what it takes to get to financial independence for you specifically. Some people feel they need $400,000 a year to live on and others live off $20,000 a year. It’s all dependent on you. For me, I could live off $80,000 a year if I needed to or wanted to. That’s how I run the numbers. Everything’s based on what I call the 8% rule.

I feel similarly. For me, I like to get at least 8%. The way I’m looking at it is looking at stocks over the long term. They say that if you zoom out, stocks should do about 11% a year. With the inflation being 3%, you’re looking at that 8%. I’m not just going to set it and forget it in an index fund. I should be getting 8% anywhere else. That’s how I put my number out there. To give some context because Craig is saying, “You’ll do better with a house hack.” Yes.

House hacks have a limitation. You can only do one a year. There’s a lot of sacrifices involved. If you’re older, you might not want to live with a bunch of people or whatever. If you went out there and bought a house in Denver now, you would be lucky to get a 5% return buying something on the market and trying to rent it out. That’s common in most areas of the US. This is still good. You might need $50,000 to get started. Depending on the syndication, you usually need a good chunk of change.

$25,000 is probably the lowest that I’ve seen realistically and then go up to infinity. Some of these are $250,000 minimums and stuff like that. The industry norm is probably $50,000 to your point. Recognize that sometimes you have to be an accredited investor, a high net worth, high-income individual to participate. In other syndications, you don’t. It depends on Reg D and whether they’re operating under 506(b), 506(c), or 506(a). I won’t go into all of that. It’s a rabbit hole.

Know it’s capital intensive. To your point, look at our today’s yield, look at treasuries paying whatever, 1%, bonds paying 2%, money in the bank paying nothing. 5%, 6%, 7%, for a lot of folks, it’s still a healthy return. If you want to be active, put a lot of time into it. Get creative, do house hacks, do short-term rentals. You can exceed that. You’re also putting a lot of your time and effort and energy into that. You’re paying yourself a salary to do it.

To recap, you came from humble beginnings, ages 0 to 18. You went to college. You didn’t love the whole college thing. You decided to get a job in an oil field and that made some money. Before that, you got your first house hack. You saw the power of real estate investing in house hacking. You started saving because you were hustling your ass off for those 6, 7 years in the oil field, side hustles, and all that. You started flipping and Airbnb, which is nuts if you think about it. In seven years, from 2009 to 2016, you went from a house hacker to a 100% passive limited partner, which is a passive investor, which is an incredible plan. It sounds like you’re managing your own money in different syndications.

Having that FI and frugality mindset helps a lot. I can’t tell you how many wealthy doctors, dentists, attorneys I talked to these days who firmly believe they can’t do less than $300,000 a year. They can’t survive if it’s any less. Maybe that’s true for them but it’s certainly not true for me. If you can have the two sides of the coin down, your personal finance and then your investing mindset, you can do well. Last thing, a real quick quote from Tony Robbins, and I love this quote, “Most people overestimate what they can achieve in one year and they underestimate what they can achieve in a decade.” That couldn’t be more true. That’s exactly what you pointed out.

I hear that all the time and it’s true. People are lofty with their January 1 goals but don’t even think about the next few years.

The last thing I wanted to point out about syndications is that, often, they’re only for 2 or 3 years. I don’t know if you’re seeing that around. Sometimes it’s a development and then they go and sell it and then you have to go and find a place for your money again. Is that how you’ve had this thing where you’ve worked with 36 different operators? You’re hustling your money from here to there.

There are three business models and syndication for the most part. I’m generalizing. To your point, if you’re going to be in a new development, it typically takes 2, 3, or sometimes up to 4 years if you’re being conservative to build, occupy, sell, or whatever you’re doing. In the value add space, which is where I invest a lot, it’s 3 to 5 years. It goes a little further out.

It takes a long time to renovate 400 units when you have 400 people living there. You have to wait for people to move out. You have to renovate the vacant units and switch people around. It’s a process. Sometimes I’ve invested with a couple of groups and they never target to sell. They say, “We’re going to buy. We’re going to hold. We’re going to refinance when we can when it makes sense. We might sell in 5, 10, 20, 30 years.” You’re in for a ride. It’s whatever you’re comfortable with. Mostly, I’d say five years to put a conservative average on it.

Before we head to the final part of the show, any last words of wisdom?

Get a mentor, a coach, a program. These are mistakes I made early on. Yes, I did a lot of different things. I was a little bit lucky because of market cycles and where we were. I wish I had a mentor. I wouldn’t have done half the things I did and I would have done them a lot better. I can’t emphasize self-education enough.

Let’s get into The Final Four. Z, kick us off.

Travis, what are you reading right now?

I read quite a bit. The books are Can’t Hurt Me by David Goggins, an ex-Navy SEAL. It’s about mastering your mindset and things like that. Ten Years A Nomad by Matthew Kepnes. It’s about traveling the world for ten years. My wife and I love to backpack and travel. I try to balance a little bit of how-to and self-development with a little bit of fantasy and goal setting.

I love that you backpack because you look like a slick millionaire guy. It’s funny to think of you wearing a backpack anywhere.

We went and we backpacked to Asia for our honeymoon for eighteen days. That was a life-changing experience. Since then, we’ve done a lot of traveling. Minus COVID being a little bit of a setback.

COVID dismissed a lot of people’s travel plans. What is the best piece of advice you’ve ever received?

ITF 43 | House Hack
House Hack: Financial independence is about doing more of what you love and doing less of what you dislike. These are things that all are about time, more than money.

 

One of my mentors told me a little too late in the process but it’s great advice, “Double down on what’s working.” From 2007 to 2010, I launched almost twenty small businesses, small ideas, post-college, and throughout high school and college, but they all failed except real estate. I doubled down on real estate. It’s what made sense. Double down on what’s working.

What would you say is your why?

I like to help inspire others to have a more fulfilling life. To me, financial independence is about doing more of what you love and doing less of what you dislike. The way I see people getting there, the way I did it is having more passive income than you have lifestyle expenses. When you cross that threshold, you start to have more options. To me, it’s not a money game. I don’t set goals anymore like, “I want to have X amount of millions of dollars.” I set goals like, “What do I want to do with my time?” Travel, vacation, starting a family. These are things that all are about time more than money.

I’ve always wanted to help people. I wrote a book in high school. I don’t know why I did this but it was how to help people at my school achieve a higher GPA. Using some hacks is what I called them. That helped me. It was staying organized. I was goofy. It’s like having a calendar and joining mastermind stuff at school. I’ve always had a knack for wanting to help people do better.

The final semi-real question, if you were held at gunpoint and told that if you didn’t impress them with your dance moves or you’d be killed, what dance moves would you be busting out?

It’s the 50% sprinkler is what I call it.

The broken sprinkler, I love that. That’s funny. You will survive that task. Travis, where can people find out more about you?

Connect on BiggerPockets, LinkedIn, Facebook, Instagram, @PassiveInvestorTips. I’d be happy to connect with anybody. AshcroftCapital.com/Travis, I’ve got some PDFs there if anyone wants to connect over the phone. You can book a time on my calendar there.

Thanks so much. I appreciate you coming on. You’ve got quite an inspiring story. We all aspire to be where you are.

Thanks, Craig. Thanks, Zeona.

We’ll see you soon.

That was Travis Watts.

I love when you have a cool last name like that, Watts. It makes me think of inspiration, light and energy. I was like, “He lucked out in the last name category.”

Electrifying is what I always think of. What a story he’s got. Look at him going from a cute little $80,000, $90,000 house hacks to all the way up to being a big bad limited partner, which is everyone’s dream.

That’s my dream. I’m about to get on the phone with him after this and learn everything. I’m excited.

I’m many steps behind him. I feel like I’m a couple of steps behind him where I’m like, “I’ve got these single-families out in Fayetteville that a lot of people know about.” I’m looking to sell those. It’s a new underfeeling in my life where it’s like, “These single-families are not serving me anymore. I feel like every month, something comes up with me having to fix the sink or fix an ice maker or stupid stuff like that.” I’m going to be 1030-ing those into a commercial property.

I’m doing the triple net lease side. I like that model a little bit more. I like owning the building for the long-term versus going in and out of deals. Those are my goals. I’m not I’m not knocking syndications. I will be doing some syndications as well. There’s no one right strategy that anybody does, maybe except house hacking. I am obsessed. It’s such a good starter. You got to think about what your goals are and then have your investments align with that.

My goal is to be lazy. I’m excited about that. Show me the syndications.

You want to be able, from your bed, look at your phone and see that monthly check hit. Zeona, before we part, any last words of wisdom for everybody?

Get started. That’s all I’ve got to say. I talked to people all the time that are renting and they have a good deal and are being frugal. When you’re renting, you’re not riding up the escalator of equity. That’s the thing you miss out on. Often, when I meet people in their 40s and 50s with almost nothing to their name, it’s because they don’t own homes. Getting your foot in the door, even if this market is hard and expensive, will pay off. Get started.

Riding the escalator of equity, I like that. We’ve got to come up with a little picture of that. That’s great. We always ask this but we’re going to ask again. Please, if you can leave us a rating and a review on iTunes, Spotify, or wherever else you can possibly find us, it’s super helpful. This helps us make the show better and all that stuff. That was the mandatory plug. Other than that, we will see you all next episode.

 

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About Travis Watts

ITF 43 | House HackWHAT I DO: I help busy professionals and investors free up their time. Investing in real estate does not have to mean flipping homes or managing tenants. You can be hands-off and have less stress

MY STORY: I used to be an active investor who owned single-family homes (fix and flips, vacation rentals and buy and hold properties)…until I burned out in 2015. My rental properties were taking up too much of my time; it felt more like a job rather than an investment. Today, I am a full-time PASSIVE multi-family apartment investor and the Director of Investor Relations at Ashcroft Capital. I dedicate my time to educating others who are looking to be more hands-off in real estate.