ITF 46 | Rent-By-The-Room

 

Necessity drove Todd Baldwin to get a job at the age of 12. He started his first business at 15, learned about real estate while he was in high school, and then bought his first house at 23. Two years later, he became a millionaire. How? He maximized the rent-by-the-room strategy!

In this episode, Todd walks us through all that he has been able to achieve thanks to his do-or-die attitude. He goes into detail about his “for real” deal and some of his other properties, presenting the advantages and disadvantages of renting by the room.

If you’re new to real estate investing and you’re looking to build wealth fast, this is the episode for you!

Listen to the podcast here


 

Mic Drop Bootstrappin’ From Food Stamps To FI With Todd Baldwin

Z Money, how are you doing?

I am doing fantastic. We put an offer and the highest I have ever done. It’s $1.5 million so far. That’s pretty exciting. We will see how it goes.

Speaking of exciting, I am about to run through a wall after the scenes of this episode. We chatted with Todd Baldwin. This dude is a machine. He’s insane. He used to come from nothing to have to build a tremendous amount of wealth for him and his family, so it’s a cool story.

I’m so inspired. It’s crazy to see what can happen and what you can do even in an expensive market like Seattle. There’s so much wisdom and cool nuggets, so read until the end.

You may even want to reread because if you are new and looking to build wealth fast, there are going to be some sacrifices but this is a powerful way to do it. Let’s now reveal his whole story. Why don’t we bring him on the show?

Todd Baldwin, welcome to the show. It is an honor to have you here. How are you doing?

I am doing great. This is a pleasure. I’m so happy to be here. I am happy that I reached out to you, and you said yes. I reached out to you again, and you said yes. I am so stoked to be here. It’s awesome.

It’s a funny story. A lot of people heard you on the BiggerPockets Podcast. What episode were you to let everybody know?

It’s 392.

He’s the dude that’s rocking the rent by the room in Seattle. You and your wife are crushing it. BiggerPockets was doing a great job, so much that we also want to share some of the love. Why don’t you tell us where it all started and how you have heard about financial independence?

I will go away back because that’s probably where my story began and where it’s most prevalent. I grew up in a poor family, food stamps welfare poor. My mother, unfortunately, was married to an abusive guy, a wife-beater, child molester, and all the things. To get away from him, they’ve got divorced, which was good but my mom was left to support three children by herself. In their relationship, she had thought that my father was paying the rent, and instead, he was using it for drugs. Shortly after that, we’ve got evicted and almost ended up homeless.

Luckily, we had friends that helped us get into a place. I don’t even know how we did it but we didn’t go out on the street, so that was great. I’ve got my first job when I was twelve years old because I saw how much my mom struggled and that money was always a problem. I’ve got that job at shoveling manure for $3 an hour, and that’s when I came home one day and told myself, “I’ve got to make millions of dollars.” As a twelve-year-old kid, I started reading books. I started my first business when I was fifteen. I started making money online when I was nineteen. I started investing shortly thereafter and bought my first house when I was 23.

You dropped so much on us. First off, I was like, “Can we hug you? Are you okay?” After that, I loved knowing how the entrepreneurial thing was in you. I feel that’s the thread we hear so much. When I was younger, I was selling candy bars and printed out pictures to people in school. I was hustling. It’s in our blood. I love knowing that. Right away you are like, “I’m going to read books, and I’m going to make $1 million.”

Funny enough. I also sold candy bars.

Buy bulk from Costco and hook them.

I didn’t do Costco but I did do a door-to-door house painting thing.

I’ve got recruited. I didn’t end up doing it.

It wasn’t great.

Your story is probably one of the deeper ones we have known where it’s almost you have to figure out about financial independence because of necessity, not because of, “It’s cute.” Until you don’t have to work and stuff. Did you have any siblings?

I had a younger brother and a much older sister. My older sister is thirteen years older than me. Technically, it’s my half-sister, but I consider her my whole sister. She was off in college, which was great, and she’s doing well now. I was working, and my younger brother was doing his thing but it did start of necessity and seeing my mom struggle.

By far, that is probably the most powerful thing that pushes family for a lot of people. What books did you pick up at the age of twelve? I don’t want to date you too much but around what year?

ITF 46 | Rent-By-The-Room
Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

No worries. I’m still a relatively young guy but I started working when I was twelve. I started my landscaping business was when things took off for me. At the time, the minimum wage was $8 an hour in my area. I’m in Washington State but I was able to make $15 or $20 an hour but one of my biggest clients was his real estate guy, and he owned property all over town, and I would do his landscaping.

Eventually, I was like, “How do you own all this property?” He didn’t tell me too much but he told me some books to read like Rich Dad Poor Dad, Richest Man in Babylon, CASHFLOW Quadrant, and all those books. I started reading, went to the library, and researched that way. From the time I was 14 or 15 years old, I knew that I wanted to own real estate, whether it’s single-family homes, apartments, you name it, I wanted it. That’s pretty much how it started.

How do you go through high school already knowing this? If I knew this in high school, I would be like, “Why the hell am I here? I need to be saving up for the next house hack or whatever it is.”

That’s the thing. If anybody asks what I would change, I went about my first house when I was eighteen. I didn’t end up buying until I was 23. When I was in high school, I was told that going to college is where you go to learn how to become wealthy. I’ve got college and figured out that’s not what college is about, so I ended up dropping out of school. I dropped out of college when I was 22 but I went and landed a sales job. I was making six figures and my sales job, 8 or 9 months after dropping out of school, and I dumped all of that into real estate. All through high school, I was sitting there. I was like, “This is dumb. I want to go make some money.” It’s time to get after it. That’s what motivated me.

I can see that. You are sitting there going like, “I could be mowing lawns now.”

Once I found out about financial dependents, it was after college for me and I was like, “You can’t unsee it.” The fact that you had to unsee it for four years is going to be hard. What year did you graduate high school to give everyone a time reference?

I graduated high school in 2010. I went to a college like a hippie school in Bellingham, Washington, which is where I met my wife. I stayed there until 2013 or 2014 before dropping out. I didn’t even have that much time left but I had an opportunity that was way too good to pass up, so I took it, and here we are.

You figure out about financial dependents when you are super young. You can take a hiatus now we were in 2013 or 2014 and you are like, “I’m all in on this. School sucks.” I would love to know your thought process. If you can, take your brain back to 2013 before knowing what you know now, what was that thought process? I’m sure people are having that discussion with themselves now.

If I take a couple of steps back, I will have to pay my way through college. It’s a combination of scholarships, loans, and me working because I didn’t have a family who could pay for it. When I’ve got to college, I was doing the math of what minimum wage jobs would pay while I was in school, and the math didn’t work out. There wasn’t enough money to pay rent, buy food, pay tuition and books. It wasn’t working, so I opted to take a commission-only sales job while I was in school, so there was no hourly pay and no salary but I could potentially make an uncapped commission.

I was able to sell because my back was against the wall. It was either you go sell or you don’t eat. That was my reality. I had to sell to eat and to pay rent. That was rough but I took everything that I learned from that hard crazy job, and I’ve got recruited by this insurance company. They sell commercial insurance to different businesses and I took everything that I learned and went to go sell for this company. As of my door-knocking experience and my never-say-die attitude, I ended up breaking the company record in my first 30 days with that company in eight months. I was making $110,000 to $120,000 a year, and I took that and was like, “Time to buy some real estate.”

That’s insane. I want to come and commend you because a lot of people, including myself, at that time were scared to take commission-only jobs. Usually, it’s like, “Hit financial dependence. Based on financial independence, then take that big risk,” because you can, and there’s not it was to your lifestyle. The fact that you have put yourself against the wall, arguably maybe because there was no losing. You either sell or you don’t eat. The fact that you learned that life or death situation, maybe even propelled you.

Earlier on the call, we were like, “Do you need a hug?” I have the gift of pain. Everybody has their own gift. What pushed me forward is, I understand what it’s to wait in line at a food bank because you are hungry. In a way, it made me better because I never want to feel that again. I don’t want my children to feel it. I hit the multi-millionaire mark at 25. I have been a multi-millionaire for a couple of years, and it’s because of what I went through.

I love knowing this because sometimes people say, “I can’t do this because of where I have come from.” I would say, “I have had similar things to you where we were on food stamps, and sometimes, we were a bunch of people living in a studio.” I have had those experiences a little bit, and it’s saying that I don’t want that and I’m going to do anything I can to get something else. It’s so cool for people to see it doesn’t matter where you come from. That doesn’t have to define you but if you can change your mind, which is a huge game-changer. It’s the mindset of all that reading that got you fired up. It’s awesome.

Oftentimes, too, it’s that pain and that struggle, even though that if you came from a tough place and you did defy a lot of odds but that is what made you. If you did grow up in a nice cushy childhood life, you probably wouldn’t be close to where you are now. In a way, it’s a blessing in disguise. I had loved that you took advantage of that. I was working a past job that I absolutely hated.

This is nothing compared to your story, by the way, but I wanted so badly to get out of balance and never go back to the corporate finance BS lifestyle. That’s what made me want to live behind the curtain and get there as soon as possible. Even with your scenario of hustling and grit, and whatever it is, going from pretty broke at 22 to a multimillionaire at 25, there’s got to be something to unpack there.

That’s crazy. When I was 22, I dropped out of school. My net worth was negative $30,000 because I owed student loans, and I owed a little bit on a car. Fast forward before my 26th birthday, I had a net worth of $2 million and no bad debt. I had mortgages but they are being paid for by the rent but I had no car payments, no student loans.

When I was 23, we bought our first house with my girlfriend at the time, and we are married now but we bought a single-family home. It was a pretty big house for the two of us, so we decided to live in the master bedroom and rent out all of the other bedrooms to random people. We are able to live completely for free.

Nine months later, we decided, “Let’s buy another house and rent it out again by the bedroom.” We posted an ad, and in 5 days, all 6 of those rooms were rented out, and that one was producing $2,500 a month in cashflow. We figured out there’s a big business to this. There are a lot of young people who want to rent a room because studios are so expensive, especially in the Seattle area where I am, so we kept buying house after house, renting it out by the bedroom. Suddenly, we were collecting $500,000 a year in rent.

I like how you tied that up in a bow and dropped the mic. I’m like, “What?” I need a breather.

The tone of your voice doesn’t quite match what you are saying. You are like, “Is that what you said?” Let’s unpack that a bit. Let’s talk about the first deal. We like to go to the for-real deal and talk about what makes you a true real estate investor and how did you find it? Did it take your wife or girlfriend at the time any convincing to go through this and live with people that she doesn’t know? Let’s talk through that first one because I know it was an emotional roller coaster.

The funniest thing is, I know that it was my idea, and my wife thinks that was her idea. We argued about whose idea was but I swear to you, I had to get her onboard. At the time, I was making $110,000 or $120,000 a year at 22 years old. My wife was making a good income, too. She’s a CPA. We were looking to go rent an apartment and we decided, “That doesn’t make sense. Let’s buy a place.” We found a lot with a frame. We found a lot with sticks that were framing out to become a house.

The best time to plant a tree in real estate was 20 years ago. The second best time is in 2015. Click To Tweet

We figured out who the builder was because we liked the lot in the area. The reason is this area is about twenty minutes outside of Downtown Seattle and super-ripe for appreciation. Not to mention this particular frame was on a double lot. Meaning I could subdivide later and build another house on it. We figured out who those builders were and I was like, “I’m going to give you $10,000. I want to buy this house. Here’s $10,000. If I can get financing, this $10,000 will go towards the down payment. If I can’t get financing, you keep my $10,000. What do you have to lose?”

They were like, “Sure.” That’s how we’ve got our first deal. There was a random and happy accident if you will. We did not buy off the MLS. Our first four properties we bought off the market, not using an agent, Redfin or Zillow. We advertised on Facebook to get those rooms rented, and we were able to live in a brand new house, new construction completely for free. That means we could save 90% of our income.

I love hearing this because often when people live in big cities. Seattle is blown up and expensive. I hear all the time, “It’s cool that you live in the Midwest but you can’t do this anywhere else.” I love hearing that you’re like, “We’re twenty minutes outside of the city,” but you’re still in Seattle. You’re still getting the appreciation, and there’s the sprawl of cities on how they’re expanding as people have demand there. It sounds super smart.

It has been nuts. On that first house, we use a first-time homebuyer program. We put $19,000 down, and we collect $70,000 per year in rent off of $19,000 down. Not to mention, I bought the house for $506,000 back in December of 2015. Now, it’s worth $900,000. Our $19,000 investment not only produces $70,000 a year but it’s grown into another $400,000 of equity in a few years.

I want to unpack this a bit more too because I know you do these new build rent by the rooms. How many bedrooms was this first one?

This was 6 bedrooms and 4 bathrooms.

Did you design this house for this guy? You said he had the frame, so the inside wasn’t built yet. We were like, “I want to get 6 beds and 4 baths.” Were you doing what they were going to do, and it worked out to be that way?

It was framed out but there was a specific plan that was approved by the city. It happened to have 6 bedrooms and 4 bathrooms. If they had listed on the MLS, they probably would have said something like, “There are four bedrooms, there’s also a den and a bonus room but they both had legal closets and windows.” We were like, “They’re bedrooms.” We didn’t design the structure of the house or the layout. We did get to pick the finishes, the countertops, the flooring, and the paint. I can’t even take credit for it. We’ve got lucky with our first deal. We put ourselves in the position to get there but it was lucky that it was a six-bedroom house.

I am laughing to myself going, “How did you go from an apartment to a six-bedroom house?” How are you like, “That’s good. We will take this huge house?” It seems like a huge commitment.

That’s the thing. In Seattle, there’s a nice city next to Seattle called Bellevue, which is super bougie. For the price of a 700 square foot condo in Bellevue that was twenty years old. We could build a brand new house 15 to 20 minutes outside of Downtown Seattle. For us, that was a no-brainer if we want a family someday and all these things.

I had the bright idea, my wife thinks it was her idea to rent the bedrooms. I had that idea because before that I was renting a room in a house. I rented a room for $700 a month with a six-figure income at 22 years old because I wanted to save every dime for real estate. When we bought a house, I was like, “I was willing to pay $700 a month, maybe other people are willing to pay that, too.” Sure enough, right away, we’ve got five tenants to offset our mortgage, and we were living for free.

Let’s throw it into the numbers on that first one. You’ve got 6 beds and 4 baths. You are living for free in the master and renting each out for $700, so that’s five bedrooms.

It’s more than that. I paid $700 where I was at but we charged more because we had a maid come through once a week. She cleaned the entire house from top to bottom and my wife, and I also supplied all the soap, toilet paper, and paper towels, so nobody would fight over it. Our average room is about $1,000.

You were bringing in $5,000 a month. What was your mortgage payment on that, your PITI?

At the time, because I was paying PMI and we only put 3.5% down, it was $3,000 to $4,000 a month but we were living there for free and making $5,000. We were getting paid to live there.

You’ve got $5,000 rent, and $3,600 is going out in your mortgage, so you’ve got $1,400 leftover or maybe a couple of hundred bucks. You are cashflowing probably around $1,000 a month, true bottom, net, cashflow while living there for free. That’s probably even more because you get the master. It’s maybe $1,200 for the master. That’s a double strategy.

We rent a room on steroids because we do that all the time out here. Denver and Seattle are super similar markets but doing that luxury type thing, where you are offering the services, you may be able to charge a little bit more for it. That’s crazy. Have you calculated your return on investment from that if you add it all up? What does that equal out to be?

It’s so crazy. Now that I don’t live there, we are renting out that master bedroom. We are getting $1,500 a month now in the master bedroom that we used to live in a couple of years ago. Our profit on that house every year after everything because we do pay all utilities, the maid, and all that stuff is about $26,000 per year in profits. We only put $19,000 down, so that’s 135% cash-on-cash return, not to mention that $19,000 of equity has turned into about $400,000 of equity because of the appreciation. If you annualize that over six years, that’s a 946% return every year or something like that.

The power of that is you took the biggest power of house hacking. The way to get the highest cash in cash return is to lower your initial investment. That is going always to be the way to increase your return. For you, you are going to take a step forward with rent by the room, and that took me even another step forward with this almost luxurious rent by the room, where rent by the room does have to be a bunch of crapheads living together and fighting over who does the dishes. It could be like, “We’ve got a maid. Don’t worry about this.”

He is in some hot water but I saw this thing about Bill Gates at the time, where he was like, “I’m not interested in competing in a market. I want to dominate the market.” I had that mindset with rent by the rooms. I know that having roommates isn’t for everyone but if you are going to have a roommate, I want it to be a no-brainer that you are renting from me. We made the houses as nice as we possibly could with new construction, nice furniture, we’ve got the maid, Netflix, Hulu, and all the things. I wanted to make sure like, “If someone decides I’m going to live in a house with a bunch of strangers, they are coming to me because I offered the best product.”

When was the turning point for you that you were realizing, “We can replicate this? This is something here?”

ITF 46 | Rent-By-The-Room
Cashflow Quadrant: Rich dad poor dad

Maybe four months into it, we were living for free, getting $1,000 a month to live in our house, and we are still making six figures, so we are saving all that. That’s when we are like, “We rented out these bedrooms pretty fast. I bet you, we could do it again.” We bought house number 2, nine months after closing on house number one. Six months later, we bought house number three. That’s when we realized at that point, we were collecting $17,000 a month in rent. We realized that there’s something to this.

Typically, you have to wait a year for these owner-occupied low down payment loans. How did you navigate around that for the nine-month thing?

For our second property, we didn’t live in. We bought that as an investment house. We put 20% down. We are able to do that because we are living for free. Six months after buying our second house, we did end up moving into the third property, putting 10% down owner-occupied. Twelve months later, we bought another one owner-occupied again.

People ask me, “What do you do in between house hacking?” A year doesn’t sound like a long time when you are looking back on it but when you are in that year, it’s a long time, especially when you are trying to go towards financial independence. I always say that you never want to not be able to house hack because that is going to always be your highest return on investment.

As long as your lifestyle adheres to house hacking, you should do that. If you’ve got $30,000 or your first $30,000, it goes to a house hacking. If you can get another $30,000, you funnel that into the traditional investment property, and it sounds like you are making basically tons and tons of money, so great for you. Would you agree with that?

To a certain point, for my sales job, my salary was $150,000 and I was making these huge commission checks. I had a commission check one day for $40,000. The down payment to my third house was $60,000 so it’s like, “Here’s one commission check plus a little bit more.” That’s the down payment for my third house. We were making money hand over fist. My wife was employed at an accounting firm, and I’m doing well there too, and the fact that we weren’t spending any money because we were living for free and getting paid to live, we are able to snowball that and keep buying properties.

I had a question about the price point of things now because a lot of people will go, “In 2015, I wish I bought that. It’s 2021, and that same house is $900,000.” What are you finding now? Are you changing your strategy a little bit?

The best time to plant a tree was twenty years ago, and the second-best time is now. In 2015, when I bought my first house, people called me an idiot and said that I was buying at the top of the market. They were like, “You are spending $500,000 on a house that’s not even in Seattle. You are a loser.” Now, it’s worth $900,000. I will admit the real estate market is red hot but that’s because there’s a low supply and a huge demand. If you are out there thinking about waiting, you are not wrong to think that.

Personally, if the deal is sound, I would still go for it. I’m still bullish on if I find the right house. I found a house that everyone thought was overpriced. It was an 8-bedroom, 4-bathroom home that I rented out for $8,000 a month. $4,000 of that was pure cashflow every single month. If the deal is right, chase the deal. I hear your point. It is a seller’s market for sure.

It feels hard to want to get in at this point. I felt the same way in 2017 when I picked up my first property, but now it’s worth almost double what it was. To me, I can’t fathom the market going down and may not go up as fast but I can’t see it go down, especially with all of this, money being pumped into the economy and rising lumber prices and all that stuff. These are all going to increase the value of homes.

I’m with you. You may not get a house that cashflows to $1,000, and you live there rent-free but can you get one that lets you live rent-free? Are you losing there? You have to work with the times, and you are going to be saying the same thing Todd is saying now, years from now, where people were like, “How the hell did you get a 6-bedroom, 4-bathroom house for under $1 million? They are $1.5 million.” You have to be able to look back and see the forest through the trees.

Not to mention, you have to live somewhere, so you are either going to pay off somebody’s mortgage, your own mortgage or you are going to find other people to pay off your mortgage. Those are the three options. You might as well own a house, rent out the rooms or own a duplex and the other half.

I have a couple of questions. I am wondering where the cap is on this because I’m thinking about Boulder. I’m like, “Could you super luxury house hack this where it’s rent by the room but people are paying $2,000 a bedroom.” At a certain point, they probably don’t want to live with people but if the house is dope enough, I feel you could get away with it. I’m curious if you have figured out that threshold.

I try to price my rooms. The average room is about half the cost of a typical studio in my area. If a studio is $2,000, I want my average room to be $1,000. Master bedrooms can get $1,300 to $1,500, and some smaller little den-type rooms might only get $800 but my average room is about half of what a studio is. Studios that are going for $2,000 don’t include any utilities, and they don’t include parking, so my appliances include all of that plus a maid. I try to make it, so it’s a good deal, and the tenants are all saving about $1,000 a month.

How did you even find an eight-bedroom house? I don’t even know what that’s like. Are you looking at frat houses at this point? What’s happening here?

I found next to the airport an 8-bedroom, 4-bathroom house. It was incredible. It was awesome, and that was one where it’s the right place at the right time. I never buy houses off the MLS. I almost always buy them off-market directly with builders but I happened to be on Redfin. I saw the house the second it came on the market. As soon as it was public, I saw it, and it was a Thursday. I remember it well because the open house was on a Saturday. I emailed the agents immediately to see it Friday.

Before the open house, I made a full-price offer in the morning, and it was mine by the afternoon before the open house even happened because I knew it was perfect for my strategy. Getting back to who the heck builds an eight-bedroom house. This was somebody else’s flip. They bought a house down to the studs and made it all awesome. I don’t know what they were thinking but they built an eight-bedroom house, and it worked perfectly for me.

That is incredible. How do you find these builders? Are you driving around looking for complexes that are going up? Oftentimes in these new builds, there are HOA fees, there are limits on parking, and all that stuff. How do you navigate all the rules and also the rules of Seattle and Bellevue or whatever other cities you are in?

My golden nuggets have been, I have always bought in historically undervalued areas that are going through a transition. Although I buy new construction, I’m not buying in a new development. It’s basically old houses, empty fields, boom, big, a beautiful brand new house pops up, and that’s what I buy because the houses are on much larger lots, and there’s no HOA.

That strategy makes sense. I have also heard that you should never buy the nicest house in a crappy neighborhood. You go against that advice, and you’ve got a reason for it. I would love to know about it. Did that because of your head at all?

It’s conventional wisdom but I’m doing the exact opposite of that. I have always bought the nicest house in the neighborhood, and it’s because I’m not buying in traditionally nice neighborhoods. I live in an area now called Burien, Washington, it’s about fifteen minutes South of Downtown Seattle. Historically, it hasn’t been a nice area at all but they are putting in a new library, a new community center, they are cleaning up the city, putting in new restaurants, bars and making it trendy. I saw what was going on. The duplex that I’m sitting in now I bought in August of 2019 for $900,000. It was appraised at $1.5 million. What I’m doing is I’m catching the wave of the cities that are up and coming, and I’m buying the nicest house that I can in that city.

Save millions by keeping a frugality mindset that pushes you to live like you are broke. Click To Tweet

It’s risky but beautiful.

It has certainly paid off, and you can see where your net worth comes from. You’ve got one property that’s appreciated almost $500,000 at this point. This one is appreciated for $600,000. Between these two properties here, you’ve got a million dollars in equity, and that doesn’t include that your mortgage is paying down and all the other great things it has been doing for you. That’s the power of real estate.

I’ve got a bunch of other properties that have done the same thing. I don’t know if people usually talk about this on the podcast or not but if people are curious, my income after taxes and after expenses, I will net $1 million in my pocket, in the bank. That’s what I plan on making enough that I will be able to save $1 million dollars, and I’m certainly on pace. It’s crazy.

This is from your rent by the room endeavors or do you have another job that you are doing?

No. I don’t have any 9:00 to 5:00 now. It’s just from real estate, so it’s a combination of rent from the room, the money that I’m collecting there, and doing some wholesale deals where I’m selling. My income in 2021 is going to be right around the million-dollar mark after-tax because of the crazy beautiful power that is real estate.

I want to hear the negatives because that’s the thing in real estate. We are always like, “We are brilliant. It’s amazing. Nothing wrong ever happens.” I imagine you have some tenant placement issues, drama or bullshit. What are those bad days looking like?

Sometimes personalities don’t mesh, so I have to address that. I have had to evict/non-renew 10 people over 5 years but that’s also across about 128 tenants. I have had to non-renew about ten of them. I have luckily never had to file an actual eviction. I can talk to them and get them out. You are right. Sometimes it’s not a great fit. I can go into all the details that you want but I had a guy living in a master bedroom who was in a relationship with another guy. He asked if that guy could move into the master bedroom to be together. I was like, “I’m cool with it.”

My tenant who already lived there, once his boyfriend moved in, beat the holy hell out of his boyfriend who moved in. He beat the shit out of this dude. I’ve got a call at midnight that these two men were fighting in the master bedroom. I’ve got there, and it was bad but that was the most extreme case. It’s never happened since then. Honestly, the background checks don’t account for alcohol problems and rage issues. I’ve got that guy out in three days.

I’ve got two questions for you. The first one is, how do you evict in rent by the room? A lot of people don’t think you can because when you evict someone, it’s an address, not an address in the bedroom within that address. The sheriff doesn’t come to someone’s bedroom and put a sign on the door. How does that work?

The great thing about rent by the room, especially if you live in the house, is you don’t have to follow all of the Landlord Tenant Rules that a traditional rental does because I don’t have tenants, I have roommates. This is how it works in Washington. I don’t know the laws of your state. Not that anyone should discriminate. I have an all-female house, so if a 60-year-old man says he wants to live in that house, I can legally tell him no. You are not allowed to discriminate based on sex. You shouldn’t be, and I’m not saying you should. It’s because this is only women living in the house, and they don’t want to live with men, I can legally say, “They don’t want to live with a dude but I have a house you can go to.”

As far as getting people out, usually, I can talk to people, “You are doing things like leaving your mess in the kitchen or you are mad that there’s other people’s food in the fridge,” or whatever it is. “Clearly, you are unhappy living with 5 or 6 roommates, and you would be happier in a studio.” Usually, when you lead them down to the well, they get it, “I’m unhappy here, and I want to go.” I have never had a problem getting somebody out on a specific day that I wanted to get them out. Knock on wood.

I want to know your strategy because I imagine you would distill it down. If you get a new property, what are the couple of steps or the boxes that you check every single time?

First, I want to make sure that there’s a good bedroom-bathroom ratio because you do not want 6 people sharing 1 bathroom. That wouldn’t work well. The second thing is an excellent parking situation, so at least one parking spot for every rentable bedroom. That means if there are 8 bedrooms, there have to be 8 parking spots. I don’t do street parking.

The next thing is no HOA. That is because some HOA’s don’t allow you to rent or they limit the number of cars that can park in the driveway. The last thing that I look for, other than being in that undervalued area going through a transition, is I look to the best I can, match people based on personality. It’s not an exact science but it helps to keep harmony in the house.

How do you find an eight-parking spot house that doesn’t involve street parking? Are you building a cul-de-sac in the yard or something?

Another good point as to why I’m buying in these undervalued areas is the lot sizes are huge because there haven’t been developers coming through and sectioning off every little sliver of land to build these row houses on. In Downtown Seattle, the houses that are over there don’t even have driveways because they are so close together. My houses have driveways and garages, and they are on these huge lots. I’m buying in areas where the lot size is double the triple what the lot size in the city would be.

Are you paving a driveway yourself?

Yes, or I’m hiring someone to pave the driveway, and I’m putting down gravel for extra parking.

I want to know a little bit more about the strategy. When you go and furnish the house or you set it up, are you buying the same furniture each time? Do you have a whole system now?

I do. We have a rewards card at Macy’s furniture gallery because that’s where we buy all of our furniture, and then we get the kitchen stuff from either Costco or Bed Bath & Beyond, so it’s the same thing. It’s almost like an assembly line process. We know that every house is going to get a couch, a coffee table, a rug, a TV, all the kitchen stuff. We also put enough towel bars in all the bathrooms because they usually don’t come with six. It’s streamlined. We have a checklist of everything we need for every house, and we go down the list and check it off.

How many do you set up a year?

ITF 46 | Rent-By-The-Room
Rent-By-The-Room: Get the highest cash and cash return by lowering your initial investment.

 

In 2021, I slowed down a bit, not because I’m bullish on the market. It has to be the right house. I’m picky in my criteria because I need a good bedroom-bathroom ratio, big lots, and all those things we talked about. I looked at properties every day for ten months before landing on this duplex and buying it. I’m particular in my criteria. I personally haven’t found another deal that I have wanted to execute on but I’m always looking. Usually, I would buy a house every 12 to 18 months.

I’m curious how many you have now.

I own 6 total properties and manage 2 others for a friend but as far as what I own, they are six. From those 6 houses, I have around 35 tenants.

I’m blown away that you can make that much off of six houses. I’m doing it wrong, Craig.

It’s crazy. If you have six houses, all of them are at least six bedrooms. If you are getting $1,000 a month per bedroom, it adds up nicely. As some of them are a little bit higher, it’s $40,000-ish a month that we are collecting at this point in rent across the six single-family homes. It’s way above market and it’s incredible.

Are you renting the duplex by the room, too? I know that’s typically sectioned off by unit.

Yes. When we first moved in here, my wife and I took the master bedroom and rented out the other two bedrooms in our half, and then we rented out the other half of the duplex on Airbnb. We also converted one of the garage spaces into a studio. We put that on Airbnb as well. When COVID happened, we took down our Airbnb listings but we rented them out long-term. Now we no longer live with roommates in our half. We’ve got rid of our roommates in November of 2020 because, at this point, we had been married for three years, and it was time to ditch the roommates.

I was like, “Is there a certain amount of income you need to make or at a certain point to go, ‘I hate people,’ when you get rid of the roommates?” I’m glad you did that.

It was needed. Before this house, my wife and I lived in a house with 6 roommates, so there were 8 of us. We were sharing one car. We had a net worth of $2 million, and we are making $500,000 a year living with six other people. It’s something I had to give.

That is the fundamental way to build tremendous wealth. You are a multi-millionaire but you still live like you are in college. That is the key piece that people don’t get that lifestyle creep in. Once you hit a good net worth, you start living your life a little bit more. That’s the whole point. I want to reconcile something. I don’t mean to be a stickler. You said you are making $40,000 a month on rent. That’s a tremendous salary. That’s almost $500,000 a year. You said you wanted to make $1 million in 2021. Where’s that other $500,000 coming from?

It’s just sales. I’m selling real estate as well. I left my traditional W-2, 9:00 to 5:00 but I do off-market deals all the time. I’ve got one under contract where it’s going to make me $265,000 on this sale. The power of real estate is incredible. That’s the other thing, too. In my income in 2021, I will net $1 million. My housing payment is $700 a month because I rent out the other half of my duplex. By the way, $900 goes to the principal. I’m not even paying to live here. It’s a different line item. It’s going from my bank account to my asset account. It’s crazy. The power of real estate and staying frugal is wild.

I feel like we are opening up Pandora’s box here because we have uncovered 1/2 of your $1 million in 2021. What does it take to wholesale? How much time does that take? Are that most of your time now? What are some of your strategies there, the whole system in those deals, especially those larger numbers?

Honestly, it’s super easy. It’s one of the easiest things that I have ever done because I have done hard jobs before this. Finding deals where if you have somebody that wants to sell a place off-market or you have somebody else that wants to buy a place, you can assign the right to buy this house and sell it at a markup. The market now in Seattle is crazy. I have a friend who did this in a mobile home park, and he got a $400,000 assignment fee. That one checks for $400,000, “Here you go. Here’s $400,000. Thanks for finding this deal for me.” I’m going to get a check for $265,000 on this one deal. I’ve got one in early 2021 for $273,000.

You are not even doing a lot of deals. Are you finding these by letters and all that stuff?

When you become an accredited investor, you can get put on this buyer investor list. For anyone who may not know, it might depend on your state but in my state, an accredited investor has a minimum $1 million net worth and a minimum annual income of $300,000 a year. That’s the criteria. You get put into this loop if you wish to get all these deals on new businesses, new real estate before it hits the market. That’s the key. Before it goes on the MLS, I see it months before. I get all these deals. I see which ones make sense for me and which ones look good. If I like it, I execute on it. It’s simple. I know a girl who just started, and she’s making around $30,000 a month wholesaling properties.

What is this list? I feel like the readers are like, “Where the hell is this list coming from? I have never heard of this list.”

It probably honestly depends on the area that you live in your state. I’m on an accredited investors list where you meet these criteria of income and net worth, and then if you are an interested buyer in assets and you give your asset class for me, it’s real estate, you get these things sent to you. It’s like, “I have this property before it comes on the market. Do you want to take a look at it?”

All the houses that you see on Redfin and Zillow, it is quite possible that those were just passed by investors and went on that way, but not all the time. Some people just list their house. The people that I work with typically tend to do everything off of the MLS. When I was on BiggerPockets, I was talking to Brandon Turner, and he had this promotion where he was like, “Find me an apartment off-market.” The reason we can do that is that you don’t have to pay commissions to a real estate agent. You don’t have to pay the listing fees. It makes it so much more profitable for the buyer if they work directly.

Does the list have a name?

I could probably find the email that I’ve got.

It’s all good. You could tell us later. You don’t have to tell all the readers.

If something feels right, it feels right. If something feels wrong, then listen to your gut. Don’t care what your haters may think. Click To Tweet

What’s funny is some of these are so arrogant. I was in a group, and I had to leave it because they were calling themselves the League of Excellence and I was like, “Your head is so big. First of all, you sound like a Pokémon gang.” This one is called The Accredited Investors List of Washington, something like that. I get emails all the time about off-market deals.

We are going to have to check that out.

I wanted to switch gears. It sounded like so much of what got you going was family and being in a struggling place. I’m wondering if you have done anything sweet for your family, like bought your mama a house or something if you had any cool stories now that you’ve got all this money.

That is the plan eventually. I haven’t done it yet. I thought of two things. One, I could buy a nice apartment building and save her one unit or I could buy her own house. She could choose that. Either way, it could make sense for me. That’s the first thing. The second thing is I’m going to be taking all the family, my mom, my sister, her husband, her kid, to Hawaii in late 2021. We are going to rent a gorgeous house right on the beach and take everybody there. That’s the plan.

I was in the grind so much putting money back into investing that I wasn’t spending any money on family or myself. This is 1 of 6 black T-shirts that I own, and that’s what I have to wear because I was putting all of my money into investing. My goal this 2021 is not just to make $1 million but to save $1 million and not touch it. The way this has worked is to keep that frugality mindset and to believe that you are broke.

I want to know what your future goals look like because it’s one of those things that when you wake up, you are only 29 and you are like, “I won the game three times over.” Maybe you’ve got a little more hustle but at a certain point, how much do you need, especially if you are good at being frugal?

You are right, I don’t need much. I do want to live in a house on the water. That has been my goal for a long time. I would like a boat. Frankly, a mansion on the lake is what we are going for. My wife is onboard but I want a plane so bad because I hate airports. That’s keeping me going. It becomes less about how much I’m going to make and what I can do for communities and stuff because my goal for a long time has also been to own 10,000 apartment units.

I will probably never officially retire. Technically, I could retire at 29 but I would be incredibly bored. I’m way too driven for that. Now that money is not a problem, it’s not about the money anymore. It’s more about what I want to do with the rest of my life. I would be bored if I just went and chilled for the rest of my days.

Are you still managing the rent by the room properties? Is that also a business of yours as well as the wholesaling thing?

I am. I manage all of them myself.

Why do you do that? You look like if you double or triple down on your wholesaling business where you can make $1 million off of eight deals, where are you going to focus your energy?

Honestly, 2021 will probably be my last year of managing them, whether or not I sell them because I could sell them for a huge profit or hire a manager. I have done it myself because it’s such a niche business where I’m not managing tenants. I’m managing roommates with personality and conflict, and they trust me and know me. I have been the guy.

I don’t picture myself managing a rent by the room house in 2022 because I will either hire it out or sell them at a huge profit. Nothing that I have accomplished would be possible without first doing rent by the room. That is how I became a millionaire at 25. Don’t skip that if you are thinking about it. I have a bias. Renting by the room is a huge loophole that everybody should do.

You do what the dollar that you have gets you the most money and rent by the room is that for a lot of scenarios. You took it to a whole new level of managing 5 or 6. I was exhausted after three, and that was it for me. If I kept going, who knows where it would be? For you, it could be the end if you want to hustle as much as you did but you could rent the house out as a single-family and lose probably tens of thousands of dollars over the course of the year. You’ve still got a property in appreciating areas. You are making $1 million a year in your wholesaling business. Life is still good.

I probably wouldn’t rent them out the traditional way because my mind has been ruined by knowing what I could get. If I can get $8,000, I’m not going to be happy with $2,500. At that point, I would either hire it out or I would sell it and make $300,000.

It’s hard to find property managers that are decent. We have gone through quite a few here in Denver. We’ve finally got a couple of good ones now but it’s tough-going for sure.

We had three Airbnbs. Finding reliable Airbnb cleaners and managers was also a nightmare, so I feel your pain.

Tom, this has been an amazing episode. Any parting words of wisdom before we head over into our Final Four?

Many people let fear hold them back. You’ve just got to do it. People that are reading, there are people with half of your talent and half of your intelligence and living the life that you want to live. While you are waiting for the right time, they are like, “Screw it. I’m going to go make it happen.”

Make shit happen.

Don’t be scared. That’s the whole mindset of Why “A” Students Work for “C” Students. That’s another book by Robert Kiyosaki, and it’s a little less popular. That mentality is so true that those C students are C students because they weren’t afraid to get yelled at by the teacher and not do their homework and do things a little bit differently. It has transpired to entrepreneurs, and then make a lot of money and don’t do things the conventional way. The A students are there getting A’s in everything they are told, living an albeit safe but normal middle-class lifestyle. Let’s get into The Final Four. Z, kick us off.

Todd, what are you reading now?

I’m rereading Richest Man in Babylon, and I’m also reading a book called the Black Edge.

What’s the Black Edge about?

It’s a novel about a hedge fund manager but it also has some actual important data in it. It follows this hedge fund manager and how he’s making tens of millions of dollars every month but he’s not happy. It’s a reminder to me that it’s not all about the money, and there are other things in life that are important, too.

ITF 46 | Rent-By-The-Room
Rent-By-The-Room: When running a rent-by-the-room business, you don’t actually have to follow all landlord tenant rules a traditional rental does because of the absence of usual tenants.

 

What’s the best piece of advice you have ever received?

Go with your gut. If something feels right, it feels right. If something feels wrong, then listen to that. Don’t care about what the haters think.

What would you say is your why?

I don’t want to say poverty because there are people around the world that don’t have clean drinking water and had it worse but I came up close to that. I don’t want that for my downline. I’m building an empire that my grandchildren will inherit, and that’s all the motivation that I need.

What social stigma does society need to get over?

Stop caring what other people think. You will be happier if you stop caring what other people think and you stop comparing yourself to others. I had a guy who felt depressed because he compared himself to me but there are guys who dwarf me as far as their success, ambitions and accolades. If I compared myself to them, I would be depressed, too. Just do you. You are not competing against anyone but yourself.

Two quotes came to mind there with everything you said, “Comparison is the thief of joy,” which I totally agree with. The other one is by Charlie Munger, which is, “When you are twenty years old, you care people think. When you are 40 years old, you don’t care what people think. When you are 60 years old, you realize that no one ever thought about you.” The quicker you can get to that 60-year-old mark and realize that no one cares about your life and no one is thinking about you outside when they talk to you.

Todd, where can people find out more about you?

I’m on Instagram. It’s @ToddJBaldwin. I’m good at responding to DMs. If you have questions about how to do rent by the room house, I usually respond within 24 hours. I get a ton of messages but I will get back to you. I also started a YouTube channel where I teach rent by the room stuff for free, Todd Baldwin.

Thank you so much for coming on. You have provided an incredible amount of information. If you are new, starting, and you want to make the most of this dollar, this would be an episode that you may want to reread. We appreciate having you. We will be in touch for sure.

Thank you both for having me. It was a pleasure.

That was Todd Baldwin. Z, what did you think of Mr. Todd J Baldwin?

I am impressed. I don’t know how you get that much rent for rooms but I love it and it’s such a cool idea.

I always thought Denver and Seattle were comparable markets, and they are on house prices. You could not get a $1,500 master bedroom, even $1,000 in Denver is pushing it. Hopefully, those rents increase here because I would love to see some of that, too.

You are also buying in shady Westminster. If you are buying super pimp houses, maybe you would be able to charge that much.

He is buying in shady neighborhoods. There are beautiful builds in those neighborhoods that we don’t have. Tremendous story. Anyone starting that is looking to build wealth fast, this rent by the room is going to give you the highest return on your investment. It’s going to suck. He does paint a pretty picture. I bet you, there are days where he’s like, “What the hell am I doing?” Overall, it’s an amazing story. Everyone should hop on this train while it’s hot, and we could still buy properties.

Do it while you are young because his biggest asset is that he’s in his twenties. You can put up with anything when you are twenty. You’ve got energy for days, and you don’t mind living with people. You don’t have certain standards that you need to meet, so that’s great.

ITF 46 | Rent-By-The-Room
Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street

Do it before you get that lifestyle creep, and time is on your side. He bought his first property at 29, and it’s appreciated $500,000. Zeona, when did you buy the first property that you still hold?

When I was 28. It took me a while.

What was it? What did you buy it for and what is it worth now?

It gained about $100,000, maybe $150,000. It was a one-bedroom. I didn’t buy six. It’s still amazing. All my properties have gained a ton.

That is the magic of real estate. You start to feel it after a couple of years and you are like, “I cannot believe I bought that property for what I bought it for.” That’s a fun feeling to have. I’m back in Colorado now, Z. I don’t know if you knew that.

We felt it. Craig is here.

The sun started coming out, and the angels came down to sing, and here we are. No more surfing for me. We are back in the same state finally for the first time in several months.

Let’s end this episode.

If you enjoyed this episode, please let us know. Leave us a comment, a rating, review that is super appreciative. We will see you all in the next episode.

 

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About Todd Baldwin

Todd Baldwin is a Real Estate Investor, Entrepreneur, Healthcare Specialist, and a YouTube Partner with Google.

Baldwin was interviewed with CNBC for his unique real estate strategy that made him a multi-millionaire in his mid-20s.

Baldwin has also been on the cover of the BiggerPockets Wealth Magazine and featured in two documentary series about politics, capitalism, and healthcare.

 

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