Jonathan Hayek worked low-paying W-2 jobs for nearly a decade before getting into real estate investing. He househacked his first live-in flip, saw success, and closed 22 rental doors within 4 years(!) through luck, creativity, and hard work. He quit his teaching job in 2019 and has been doing real estate full-time since then.

In this episode, Jonathan dives into the details of his first deal, the strategies he used to finance it, and the challenges that he struggled with. He shares what the market is like in Cheyenne, Wyoming as he talks about his next few properties. Tune in until the very end because he has a lot of gold nuggets on investing in real estate.

Listen to the podcast here


 

Advanced Investing Techniques Right Off The Bat With Jonathan Hayek

I’m here with Zeona McIntyre, AKA, Z-Money. What’s up, Z? I’ve missed you. It’s been a few weeks.

We took two weeks off. It is weird. I’m like, “Craig, I forgot how much I like you.”

I’ve been like, “What is Z up to these days?”

Hustling like a mofo.

I see you’re under contract and putting your house dreams on Instagram. Everything is looking good.

Follow me on Instagram, everyone. I see that you did a little switch-up on our intro. Is that the new one?

What did I do differently?

You did something else and I was like, “Who is this guy? I don’t even know him.”

I don’t even remember it.

That’s what you usually do. You did something different. It’s fine. Everyone will appreciate a refresh, something new.

We may go back to the old way next episode, but we’ll see.

I had a big downer. I had a $2.75 million deal that I’ve been working out and he decided to walk away from it. I’m like, “No.” It’s one of my biggest deals ever. It’s a challenging space. It would have been a big old project and he got intimidated over time.

Those big ones are intimidating. The numbers are big.

It’s fun to dream and this guest on this episode is all about that. He’s all about dreaming big, trying stuff, and throwing out offers so it’s an inspiring episode. I hope you guys read all the way to the end. There are a lot of good nuggets.

He talks a lot, but a lot of great things. He started out almost against all odds. It was a super low W-2 job. He figured out how to make things work and now things are working alright for him. Why don’t we bring him on the show?

Jonathan Hayek, welcome to the show. How are you doing?

I’m doing great. Thanks for having me.

Thank you so much for being here. Let’s get right into it. How did you first find out or hear about financial independence?

I originally got the idea of financial independence before listening to any podcasts or reading any blogs. It was a feeling within me. I grew up as the child of W-2 parents and I was a W-2 employee myself for several years. There’s that thing inside of me like it’s inside of a lot of other Millennials. There’s a feeling of like, “Where is this going? I’m going to work every day and eventually when I’m 65, I’m going to retire, but am I supposed to be miserable until I’m 65 years old?”

There was a deeper feeling within me that there has to be more and I have to do more. I was in a job where I was not making a lot of money and I knew that even if I continued in that career, I was not going to be making a lot of money even at retirement at 65 years old. I was a teacher in my previous life. I started teaching in 2007.

When I got my first job, I had a great salary of $35,000 coming out of college. I thought, “This is not going to be enough money to get me to where I wanted to go.” I continued teaching. I dabbled in some other careers in the not-for-profit world. I got married in 2015. It was after we got married that we started dabbling in the financial independence world. It started with the Dave Ramsey world and then continued on into the financial independence world.

You had a career for a while, 2007 to 2015, 2016, so for about 8 or 9 years. Before you thought about financial dependents, you were doing the hamster wheel grind. Being a teacher in not-for-profits was so fulfilling, fruitful work so it wasn’t maybe a grind, but definitely not something you wanted to do for the rest of your life. How did you get introduced to Dave Ramsey?

It was shortly after my wife and I got married. We were married in 2015 and in 2016, we wanted to go on a world trip. We started our world trip in New Zealand and we ended up staying there for eight months. While we were in New Zealand, we listened to Dave Ramsey’s book called Baby Steps Millionaires. While we’re traveling around New Zealand and staying at hostels, we’re listening to his book on audiobook. There were a lot of things that sounded great to us.

Fortunately, at the time, we were totally broke but we didn’t have debt. We started thinking about the idea of buying properties for cash because that’s a Dave Ramsey thing. It seemed insurmountable. There are a lot of things about Dave Ramsey that I like. I don’t like 100% what he stands for, but that got the wheels turning in both my wife’s and I’s head like, “Neither of our parents taught us financial strategies, but this Dave Ramsey guy is interesting. He’s got some interesting ideas. What else is there?” We started thinking about, “There has to be other voices out there besides Dave Ramsey that can teach us about financial literacy.”

There definitely are and I’m imagining you found one. I’m curious because I’m not familiar with Dave Ramsey’s teachings. I’m like, “How is he getting people to buy homes in cash?” Some financial independence people do this too, where they try to pay down their mortgage fast. If it’s your primary residence, I can see some value in that. You can sleep well at night and know that no one can take that away from you, but if you’re going like, “I want to buy five places,” that’ll take you forever.

At the time, we were focused on our primary residence. This was a short time, maybe six months to a year where we were considering this kind of philosophy. We were thinking, “If we’re going to buy a house in cash, we’ve got to go somewhere cheap.” We started looking in all kinds of crazy places that we would not want to live in but we could buy a house potentially for cash there. We’re looking at trailers.

We’re big idea people so we were like, “Maybe we can buy a trailer and just live there for a year or two, and then we can save up more money and then move somewhere else.” We started going down that rabbit hole. This is not a sustainable strategy, especially as we continued on and we thought more about real estate investing and owning multiple properties. It can knock the wind out of you if you start thinking about owning your properties outright early on. It’s certainly a strategy for later on but initially, it can take the wind out of your sale if you’re set on paying cash for properties.

I’ve done the same, where you look at all these options. One example is here in Boulder. There’s a bunch of mobile home parks and it seems like such a good idea. You could get this super brand new beautiful mobile home that almost looks like a house for $100,000. You do have the lot rent, which is expensive. Here, it’s $800 a month. I knew in my soul, even after I tried one out for a few months, I was like, “I cannot live here.” I feel like the moment I pull onto the lot, the energy in the space drains out of me and I hate it. I’m curious what you guys ended up landing on as your first place because it’s great to hustle, especially when you’re young but I don’t think it’s worth sacrificing health safety or even life enjoyment.

It’s definitely about that, how much are you willing to deprive yourself? My wife and I are not willing to deprive ourselves much. Our first deal happened in Cheyenne, Wyoming. We were in Arizona when we got married and we moved to Cheyenne, Wyoming as part of some geo arbitrage strategy. We ended up buying our first place at an online auction. After this conversation, our discussion before about buying cash, we ended up paying cash for that first house from us Auction.com.

To have a frame of reference, what were the prices in Arizona? You saw Cheyenne and you were like, “This is better.” Could you give us a snapshot of what the prices were in each place?

Moving to Cheyenne, there were a couple of different factors that led us there. The biggest thing was after we got back from New Zealand, I was looking to go back to teaching. I analyzed different markets and we wanted to stay out west, but teachers are not paid well in Arizona and we’re tired of the heat. We had to leave Arizona. We settled on Cheyenne because of the relatively low cost of living and Wyoming pays teachers well. We knew we wanted to get involved in real estate investing and we thought moving to Cheyenne would be the best course for us.

I want to talk a little bit about your Auction.com experience because that is an atypical way to get started in real estate investing. It’s super risky. It’s what people like to believe. Can you dispel that myth for us? Is it not risky or was it a risk that you were going to take?

There is risk involved for sure. We were able to alleviate some of that risk because this was one of the rare properties that we ended up buying, where we were able to get into it before purchasing it. On the listings on Auction.com, mostly it says, “You cannot enter. This is as-is. Don’t bother the residents,” or anything like that. This one said, “Contact this agent for a showing.” We were able to see it beforehand.

I’ve had some experience in the past of working on houses and doing some remodeling, so I had enough knowledge to be dangerous going into it. This house was a total disaster. There were cat feces everywhere. There were holes in the walls. There were holes in this hardwood oak floor. It was nasty. The utilities had been off for quite a while. All the bathrooms had been winterized. There was for sure risk involved. We would not have bid on it if we were not able to get into it beforehand. That made it for us that we knew what to expect going into it.

Were you scared at all seeing all those crazy things being your first investment or were you ready to roll up your sleeves and take on a project?

Baby Steps Millionaires: How Ordinary People Built Extraordinary Wealth — and How You Can Too

I was ready to roll up my sleeves. I don’t think my wife could say the same thing. There are two different perspectives you can go into your first deal. You can go into your first deal with analysis paralysis and just wait and wait. That’s one type of person, but then the other type of person will jump out of the plane and build their parachute on the way down like, “I’m going into it and I’ll figure it out. It’ll be fine.” I knew that it was a good enough deal. Even though it was my first deal, I knew how to analyze it. Going into it, I knew that it was a good enough deal that it would have been hard to lose money on it.

Let’s get into the deal analysis part of it then. How much did it cost? How much was your estimated rehab versus your actual rehab? Let’s get into the rental numbers and all the juicy details.

This was an online auction. The initial starting bid price was maybe $70,000 or $80,000. I did my numbers and I thought the ARV was between $220,000 and $240,000. I thought it needed about $50,000 worth of work. Mind you, this is my first deal so I’m just pulling numbers out of nowhere. I’m like, “You can do a lot with $50,000.” I used my eBay skills. I waited until the last ten seconds of the auction and put in the highest bid at that time and I ended up with it. The final sale price was $136,500.

You think you can put $50,000 into it so you’re all in for about $190,000, say. Ideally, you’re pulling out at $240,000, $250,000. The numbers seem to work, at least in your estimates. I’m curious to know what it turned out to be because usually rehab estimates go significantly over what you think.

This is one of those deals that you call beginner’s luck or whatever. It turned out better than anticipated. Both because it turned into our first house hack and we also had the benefit of market appreciation. This was in the summer of 2017. In Cheyenne, people at that time started seeing funny things happening with the market. At that point, it was the highest it had ever been and it had finally rebounded to pre-recession levels. Most agents and people you talk to are like, “That’s not going to be any higher than X number.” The home values kept going up and up. We were the benefits of appreciation, and then we were also fortunate to be able to turn it into a great house hack.

What is the final number? Did you ever get reappraised or anything like that, or did you hold it cash?

We sold that property and it ended up selling for $270,000, but we had some appraisal issues and ended up closing it for $268,000.

Still good though. You’re still over $100,000 profit on that thing. What were you renting the house for while you were living in it? It sounds like it was a house hack. Were you doing rent by the room? What was your strategy there?

We rented out the basement separately. It’s common in our area for houses built in the ‘50s and ‘60s to have a side door and have the basement steps right off that side door, so it’s a separate entrance. I was able to put up a door separating our house from the staircase going downstairs and was able to put in a kitchen and laundry. There were already 2 beds and 1 bath in the basement, so we were able to rent out the basement as a separate unit. Initially, our first tenant down there, we got $1,100 to $1,200, and then our last tenant there, we ended up getting $1,600.

That’s a lot. What did you end up spending on all the renovations? How long did that take because you were doing it yourself?

We were all in for about $60,000, and then all the renovations took about nine months. The basement was the last thing to get completed. When we finally had that tenant in the basement, it was about nine months after purchase.

Did you ever refinance that out or did you hold it cash, you were retaining almost that entire $1,600 a month minus insurance, taxes, and stuff, so it was a big cashflow?

The original purchase was done with cash, but it wasn’t my cash. We had about $10,000 to our name at that time. I was bidding on this property thinking, “I’m going to have to find $136,000.” We ended up finding some private money. We used private money for that initial purchase, and then about six months later, we felt like we were in a good enough spot to get a refinance and pay off our private lenders.

We refinanced conventionally because I had a W-2 job at the time. The problem then was it only appraised for $205,000. We were so confused because we knew it was worth more than that. I talked to a mentor about my issue and he said, “No problem. Just go get a HELOC. They’ll do another appraisal when you get a HELOC, and then you can get the difference of what you think it’s worth.”

I would argue that even HELOCs are even better than traditional mortgages because you only use it when you want to use it, you’re not paying back the principal, and the interest is paying back the interest. You have to be careful because those tend to become due in a couple of years, so make sure you’re able to pay those back.

One struggle that we’ve run into with HELOCs in the past is not being able to get approved for the maximum amount of equity that we have. Based on debt-to-income, they’ll say, “You’ve got maybe $70,000 of equity, but we’re only willing to lend you $40,000.” HELOCs are awesome.

I want us to commend you on how you went right into advanced strategies. I feel like you’re breezing over it. There are so many people that wouldn’t go on Auction.com that wouldn’t get private money, that wouldn’t take a scary home like that and do it themselves. I want to give you some credit for that. I’m curious how you went about getting the private money and what you paid for it because generally, it’s high interest.

This private money came from a couple of family friends. I was having a conversation with this family friend. It’s a father and son and they’ve both been involved in real estate and have been moderate risk-takers in real estate. I was presenting him with this deal and I said, “Do you know anyone that might be interested in lending on this?” He said, “I’ve got the self-directed IRA and I’m looking for a place to put this money.” That was about $110,000 that came from him, and then from his dad came another $40,000 or so. We ended up settling on a 10% interest rate.

Like any investment, you hear this about hard money or private money or whatever funding, it goes into your numbers. Yes, it’s 10%. Yes, that’s a lot. At the time, my family and friends were like, “10%? Is he a loan shark? What the heck. How can you possibly pay 10% in private money?” I said, “I’m looking at the numbers and I’m only going to be in this for six months. That’s when I think I can get out of it.” It ended up being $1,000 a month for six months in interest-only payments. One of the lenders wanted money each month and the other lender was like, “Just pay me at the end. I don’t need it each month.” The cool thing about private money is you can negotiate anything you want. As long as the two parties agree on it, you can do whatever you want with private money.

Some of the things about private money is you go to these conventional lenders and whatnot and you’re going to get a better rate, but you have to be that square peg in that square hole. If you’re a millimeter too big of a square, then you’re not allowed to get a loan from them. With private money, you can negotiate. Your credit score, background history, and debt-to-income ratio don’t matter. Anybody can get private money if you can find somebody willing to lend it to them.

In 2016, you’re listening to Dave Ramsey, who in my head is bottom of the line, basic. You listen to him if you know absolutely nothing about money and you’re not going to fail if you listen to him, to this advanced, confusing, big boy real estate investing strategy stuff. How’d you bridge that gap education-wise?

We quickly graduated out of the Dave Ramsey school of thought. Honestly, it was mostly initially from this private lender who was a family friend since I was five years old or so. I would talk to him about real estate. He and his dad would talk to me and say, “You got to buy real estate. It appreciates over time. That’s how you’re going to get wealthy.” I was not hearing that from my family, so this real estate investing family shared that with me. This was also the time that I was getting into BiggerPockets and learning about all kinds of different strategies. I figured it was time to try something out. I’m someone that’s like, “Let’s try it and see what happens. If I swing and miss, oh well, but let’s at least go down swinging.”

I love that whole story of how you were able to step it up and get out of your comfort zone. There’s no way that everything went super smoothly during that whole period. What were some of the things that you struggled with during that period?

Like most new investors, you struggle with contractors, and this was my first foray into working with contractors. I gave you the rehab number of $50,000 before. I had no idea if that was the right number. It sounded like a good number at the time. I then started getting bids on things like plumbing and we needed a new electrical panel and upgraded service. I would bring in different contractors and their bids were all over the place. It was hard to get straight answers from a lot of the contractors.

For example, in upgrading the panel, the panel was located on that landing that leads down to the basement. One electrician came in and said, “No, you can’t have a panel on this landing. It’s got to be in an open area. You need at least three feet. We can use this as a junction box, but we have to move the panel outside.” I’m like, “What’s that going to cost?” He’s like, “$5,000.” I’m like, “Geez. Okay.”

Another guy comes in and we go through the same thing. I’m like, “How much is it going to be?” He looks at it and he’s like, “$3,500.” I’m like, “Okay.” I call a third electrician and I’m like, “I need to do a panel change. I’m told that it has to get moved.” They’re like, “Is it in a closet? Is it in someplace dangerous?” I explained and they’re like, “That’s fine there. You don’t have to move it. Our standard rate for changing panels is $1,500.” That electrician, I’ve used on every single job since then. They’re the best and most honest electricians in town. Challenges like that, you don’t have any choice but to go through the experience, get multiple bids, and try to know your stuff as much as you can.

There’s huge demand for monthly rentals but no supply. That’s a definite sweet spot for aspiring real estate investors right now. Click To Tweet

One thing that I suffer from with contractors is I get lazy. I get one person out there and I’m like, “Just do it. I want to get it done.” It’s so true to take the time to budget a week for getting bids because it’s going to take time to get out there. Make sure they’re on time. Make sure they’re being honest and truthful. It sounds like you went with the cheapest guy, which usually isn’t the best way to go. People get screwed for picking the cheapest guy, but it sounds like it worked out for you.

It wasn’t just about price. It’s also about how contractors carry themselves. Do they show up on time when they make an appointment? Do they keep the appointment? Did they confirm the appointment 24 hours before? Did they get me a written estimate? Joe Schmo off the street whose cousin once showed them how to do some electrical work, you can pick up on that stuff.

When someone doesn’t know what they’re talking about or is trying to fake their way through a bid, at least to me, it’s obvious and I can pick up on it, versus someone who has an established company. They’ve got a truck with the name of their company on it. They’re on a better business bureau and they have a website. There are things that you can do besides price to hash out how reputable a contractor is.

That sounds like an awesome, good first deal. You got all the experience you possibly could ever have. You’re finishing that first deal end of 2017 and early 2018 is when the rehab was done and you’re living there. What happens next? What happens after this in the winter or spring of 2018?

After this, for better, for worse, I’m getting some confidence so I’m like, “I did this, lived in flip. I can do more. We can take this thing to the next level.” After that in the summer of 2018 is when we did our first single-family flip, and then we continued on to buy a duplex, a fourplex. We did a second house hack. Now I’m on my third house hack and we have 22 rental doors.

It’s so funny when we have people come on and we don’t know their story, so we’re like, “Did they just have one? Maybe we’ll get two,” and then he’s like, “I got 22.”

It was like that game where it’s like, “Who can count to 100 the fastest?” “1, 2, skip a few, 99, 100.” That’s what you just did. Let’s brief over the 2nd and 3rd house hacks. Give us what they were, what the numbers were, and then we want to see how you levered up into getting 22 units.

In the second house hack, we ended up buying that house because our strategy is to live in a house for two years, sell it, and move on to the next house. We do that two-year rule for tax purposes. Once you’ve lived in a property for two years, you can sell it and not pay any capital gains taxes on the profits. For example, we made $90,000 on that first deal. That was, for the most part, tax-free. We did end up paying some taxes on it because part of it was rented out and we had income on it. For simplicity’s sake, we can say we lived in it for two years, so no taxes. $90,000, no taxes. That’s sweet.

We’re value-add investors. We felt like we had added all of the value at that time that we could. We could have held on for appreciation, but appreciation isn’t our play at this point in our careers, so we sold that. We also didn’t like the neighborhood. We wanted to get out of that neighborhood. We got another house in a more desirable neighborhood. It’s an old house built in 1930. Common in Cheyenne is to have separate units in the basement.

These houses were built during war times. A lot of times, they would put a second unit in the basement for soldiers to live. There’s an Air Force base here in Cheyenne. We bought one of these houses that had great bones on the first floor. The basement was super scary, but it was one of those things where I was like, “I’ll figure it out. Let’s buy it.” We also needed a house because we were under contract to sell our previous house. We needed somewhere to live and this was our best option. We went with it, remodeled the basement, put in a two-car garage on that property, and ended up living there for two years.

Are you doing this with a low percent down like 3% or 5%, or are you doing 20% and you’re taking your proceeds for your sale to buy this one? What are you doing there?

It’s messy. When you start doing multiple projects at once, sometimes the money bleeds into other properties. We are proponents of creative financing. The simple answer is at this point with the second house hack, we got some relationships with local banks. On that second house hack, it was not able to be financed by a conventional lender. Same with that first house hack. An appraiser would not have allowed a bank to lend on it.

We’ve established relationships with local banks who will do a commercial loan. We have an interest-only period where they will lend 75% of the purchase price plus rehab funds. For the second house hack, we brought 25% down, and then we had an interest-only period of about six months and they gave us 75% of purchase plus $40,000 in rehab funds.

How did you find this lender? Did you google them or connections?

Driving around the town. Honestly, Cheyenne is not that big of a town and it doesn’t take that long to call every bank in town. Early on when we started looking at duplexes and fourplexes, we needed money. I started calling banks and started talking to them about, “Here’s who I am. Here’s what I’m looking at. Do you have any interest in lending on it?” You get a lot of noes, no callbacks. Every once in a while, someone says, “Yeah, that sounds good. Why don’t you come in and we can have a meeting about it?” That’s how it happened. It was not the first bank that I contacted. It was probably 5 or 7 banks in, but they’ve been a great partner for us and we’ve done a ton of deals with them.

We got the second one. It sounds like we have a house like that in Denver too, where you’ve got an upstairs ranch-looking house but you got the downstairs, which is almost identical to the upstairs and you can easily split those two units up. How much work did you put into this one and what were you renting it for afterwards?

The bones were there in the basement. The laundry was in the basement. Us upstairs and then the basement tenant shared that laundry. It was in a common area. The bones in the basement were there in terms of plumbing and electrical. Whenever I’m looking for a house hack or a house to turn into a duplex, I’m always looking for electric and plumbing because those things can be expensive to put in. If it’s not already plumbed in for a bathroom and a kitchen, it makes me think twice. It’s not a non-starter, but it has to be a great deal if there’s no plumbing there. This was already plumbed in for a bathroom and a kitchen. It needed everything but at least the bones were there, so I was able to use the plumbing that was already there.

You said it needs to be plumbed in for the kitchen and the bathroom. What if there’s just a bathroom? Would you be able to fish a kitchen off the bathroom into that plumbing or do you need it to be plumbed for both?

It depends. If you’ve got money, anything is possible. I would rather it be plumbed for a bathroom and not a kitchen versus the other way around because, in order to get a bathroom in a basement, you need a toilet and the toilet waste has to go somewhere. It means you have to have a sewer line in the ground. Usually in a basement, the ground is concrete. It can be expensive and difficult to put a toilet in a basement if it’s not already there. That’s what I look for.

If the toilet isn’t already there, is there a space by the main stack where I can easily put in a toilet and plumb in the bathroom around that? Regarding the kitchen, it depends on the layout of the basement and how the plumbing is configured, and then also the ceiling. If I need to run plumbing across two walls, I have to get plumbing there somehow. If it’s an unfinished ceiling or a drop ceiling, that makes things easier to get plumbing to the other side of the basement.

That’s great information. I’m learning a bunch of stuff, so thank you for sharing that. I want to have the numbers as a framework for us for this one. We’re about 2019. What did you buy it for and how much did you put into rehab?

This was a crazy lowball offer that we didn’t think would get accepted but upon seeing it, we thought, “Let’s throw out an offer. They’re motivated.” It was originally listed for $250,000 and they later lowered it to $225,000, and then we offered them $191,000 and they accepted. We ended up putting about $45,000 into that house including a two-car garage. It had no garage so we did put in a two-car pole barn. We still own it. We’re renting it, but the value is somewhere around $325,000 today. My original ARV was $255,000. It’s in a great neighborhood so we’ve benefited from appreciation in that neighborhood.

First Deal: You can negotiate pretty much anything you want with private money as long as the two parties agree on it.

 

It’s great to throw out offers. Sometimes people are too cautious and they sit on the sidelines and don’t do that. Sometimes it makes sense to try because if anything, as far as negotiation, if you put in a low offer, sometimes that’s a good anchor point, and then you can get to someplace that you both like. It’s great that you were trying something.

You miss 100% of the shots you don’t take. It’s a great thing you took the shot and you got lucky. Maybe 99% of those offers get declined, but you were able to get the one that got accepted. What are you renting this house for? What is your mortgage payment on it now that we’re past, the deal’s over?

The basement when we were living there was renting for $1,100. We’ve since moved out and we’re on to our third house hack. Since we moved out, we rent the upstairs where we were living for $1,400, so we’re getting $2,500 a month in rent and our PITI is $1,550 there. Our strategy with house hacks and renting basement units is to do furnished monthly rentals. We have found that to be a real sweet spot. If it’s furnished, it demands a premium in rent. If it’s monthly, we have found at least in Cheyenne, there are so few landlords willing to do monthly rentals. There’s a huge demand for it from travel nurses and anyone coming in and out of town. There’s huge demand and there is no supply. I hear from everyone I talked to that they cannot find monthly rentals. That is a definite sweet spot for aspiring real estate investors.

I do that all day.

You’re talking to the right person here. That’s crazy. You’re getting well over the 1% rule there in Cheyenne. Is that common in Cheyenne? I know in Denver, if you get something in the 1% rule, you’re crushing it, but I know every market is different.

Only off-market deals. Cheyenne is a small town. I don’t want people from all over the country running to Cheyenne thinking that 1% deals are all over the place. They’re not. Like most places, you have to make your own deals. A few years ago, I did get a fourplex that was a true 1% deal on the MLS, but it is not common. Your best bet is to make your own deal and find something off-market.

You’re Mr. Creative. You figure out how to make things work, whether it’s the financing the rehabs, whatever it is. You see a house, you’ve got a vision, you’re able to twist it, and make the numbers work well. It sounds like these have propelled you into a massive portfolio. I’m curious to know about your journey from 1, 2, 3 house hacks all the way to this 22-unit portfolio you’ve got now. It sounds like you were doing this in 2019. We’re just a few years later and you have ten extra units.

The first true investment property was a duplex and we got that while we were working on our first flip. It’s a funny story. It was on the same street as our first flip. I would drive down the street multiple times a day and I would see this property with a for sale sign in front. I would go online to Realtor or Zillow and I couldn’t find it. It wasn’t there, but there was a for sale sign out in front.

I waited weeks before I acted on it. Finally, I called the listing agent who was on the sign. I explained, I said, “I can’t find it anymore. What’s the deal with it?” She said, “I’ve been meaning to list that one. I’m out of town this weekend but on Monday, I’m going to put that online. Do you want to see it?” I talked to my agent at the time and I said, “Heck yeah. I want to see it.”

I found out the asking price was $150,000. This was a duplex. I had no investment properties, but I was working on my first flip listening to BiggerPockets. I’m doing the math and I’m like, “I can get $1,700 or $1,800 in rent and it’s only listed for $150,000. It sounds good.” We ended up seeing it. It was a little dated but it’s in good shape. We made a full-price offer and got it.

I was still a teacher at that time so we were able to get conventional financing. We had to put 20% down. For that, we used HELOC money from our first house hack. As time went on, we got involved with real estate meetups and we started meeting other agents and other investors in town. I built a relationship with another agent. A few months later, he’s like, “Are you still looking for properties? I’m going to have a fourplex.”

He was the listing agent so he’s motivated to bring his own buyer. I said, “Yeah, I’m willing to take a look at it.” I took a look at that. That was listed somewhere around $290,000. The rents at the time were $2,700. I thought, “It’s not quite a 1% deal, but the kicker there was the rents were low.” I thought, “It’s not currently a 1% deal but once these leases expire, I can make it a 1% deal easily.” I still have that property today. I bought that for $292,000 and rents are now $3,900. That’s been a great property for us.

It’s almost a 2% roll.

I was chuckling to myself because I’m like, “This is like reading a real estate book right here. You’re driving for dollars. You’re making your own deals. You’re throwing out offers. You’re teaching people all the tricks in the book.” I love that, that you see a sign and you realize, “What’s the harm in calling? Let me see what I can dig up.” You go to real estate meetups and you’re networking with people. That’s exactly how it happens. When you have a little community of real estate investors, you can help each other out and they’re usually so happy to do that. These are great things. I want to make sure people know what you’re doing.

In today’s market, if you’re hoping to land a 1% deal on a fourplex from the MLS, you’re going to be disappointed, at least in most markets. I look in markets all over the country and 1% deals are not anywhere. I’m sure there’s someone reading that says, “In Topeka, Kansas, I got a 1% deal,” or whatever it is. For most people reading, you’re either making your own deal. What I found is it’s the connections and relationships that get you deals because there is no shortage of people wanting to get involved in real estate investing.

As soon as something goes on the MLS, unless you are the first person to throw in a full-price offer or an overasking price offer, you’re probably not going to get that. I’ve gotten a couple of deals through a relationship with a property manager, so that property manager knows all of the owners and knows when they’re thinking about selling, so I’ve gotten deals that way. I do some other marketing, I do direct mail, and I’ve had TV commercials and radio commercials. You have to be creative in this market.

You said a little bit of gold there that I want to highlight. Property managers are a phenomenal source of deals because they have hundreds of units they’re managing. When one of their owners sells, they usually have some incentive, an agreement with the owner to find a buyer for them and to find a seller. It’s a mutually good thing if a property manager can get a deal and find the buyer they’re looking for. Definitely contact property managers and say, “If you got anything for sale, let me know.” That’s great.

On that topic, something I’ve incentivized property managers with in the past is saying, “If I close on a property that you currently manage, I will keep that under your management for at least a year.” I thought about that like, “Why would a property manager be incentivized to bring me a deal?” I try to come up with a way to incentivize that property manager to say, “You’re going to bring me this deal. Maybe you get something from the seller but you’re also going to continue to get income from me for at least a year if I purchase this property.”

It’s like a tidbit. At this point in time, it sounds like you’re straight hustling to get your 22 units. You’re direct mailing, you’re hustling, you’ve got private money. You’re living the true iconic investor lifestyle. I suspect you’ve quit your teacher job at this point, right?

Correct. At the end of 2019. Summer 2019, I was done.

Now your full-time real estate. Where do you see yourself going next?

Like a lot of investors out there, I would like to get bigger. It is so hard. Ultimately, if I want to grow to where I want to be and have the numbers that I want, I’m going to have to start investing long distance. I’m still working that out. I’m trying my hardest in Cheyenne. Cheyenne is a small town. It’s 60,000 people. We do not have 50 or 100-unit apartment buildings here, so it’s a transition period.

With 22 units, what is your monthly passive income number?

Net is in the $6,500 a month range. It’s based on maintenance and things like that. $6,500 is a number that we use.

That’s probably financially independent, if not close to financially independent. Have you shifted your strategy at all from looking at cashflow to looking at more appreciation place? Maybe your cash-on-cash returns are a little higher, but appreciation is significantly higher. I don’t think it’s a secret. At the end of the day, appreciation is what makes you rich in this game.

Appreciation will make you rich if you’re going to hold long-term. If you’re looking to hold the property for 15 or 20 or 30 years, that can make you rich and you can build serious wealth that way. When I’m purchasing a property, I’m looking for three things. I am looking for value-add, buy below market value, and cashflow. If a property does not have all three of those things, I have to think twice. I am not at the point where I feel so confident in my monthly passive income that I’m willing to start investing for only appreciation because we do not know what the market is going to do. All signs point to the market continuing to be strong and continuing to do well, but we do not know what’s coming. I don’t want to get myself and my family to a point where I’m underwater on properties. That’s why the value-add and cashflow are still so important.

If you have a really solid why, it doesn't even matter what it is as long as you have a reason for investing in real estate. That will propel you forward. Click To Tweet

Everyone’s got different risk profiles and different strategies. I know people that on their second house hack and they’re like, “I want to get this appreciation for it because I want to see my wealth grow.” It depends on who you are and what your goals are. I also saw an article that the Fed may start increasing interest rates in 2022 or 2023. That would likely suppress housing prices a little bit, but also would likely increase rents. It’ll be interesting to see how that comes into play because a lot of people who are in the investing game have only seen interest rates at 3%, 4%, and a maximum of 5%, which is paltry compared to history. It’ll be interesting to see where we end up.

For so many investors that are just starting out, likely the majority of people reading, food for thought, if you want to buy a property and you get into it at market value. You want to buy a duplex and it’s worth $300,000. It comes up and you get it for $300,000. Great. If you want to build serious wealth, how much value are you going to add by not doing anything, just market appreciation in the next 1 or 2 or 3 years? If you’re a bird investor and you just want to sit on a property and not do anything to it and not add value, unless you’re in a select few markets, for the majority of the country, that’s a risky play and honestly not a great plan for building wealth fast. Denver might be one of those markets where it might work to sit on properties and not do anything.

I’m a typical Millennial. I want what I want and I want it fast. That’s where the below market value comes in. My properties have to be purchased below market value because I’m going to rehab them and BRRRR them in six months, get my money out, and go buy another property. Whereas if you do that with a property that’s purchased at market value, if your idea is to sell and get something bigger, then you also have to add 5% or 6%, agent commissions on top of your sales price. If you want to build serious wealth fast, you’ve got to buy below market value and you’ve got to add value. Market appreciation is just a bonus.

Jonathan, we need to head into the final part of the show here. Do you have any last words of wisdom before we do?

Can I talk to you about my third house hack? Because it’s interesting.

Yeah, let’s do it.

We were in this tiny house, our second house hack, and we were ready to leave. We started thinking bigger. This house came up outside of town. The listing price was more than we ever thought that we would be able to afford. Our agent brought it to us. We went and looked at it. He was like, “It’s interesting. You should see it.” It is a large house but then it has a separate purpose-built mother-in-law suite attached to the house. One bedroom, one bath mother-in-law suite.

It has a basement that can be potentially outfitted for an additional unit. It’s a walkout basement, separate entrance, and then it’s located on some land so there’s also an RV garage. I’ve also been renting out the RV garage. Two days after we moved in, I had someone living in the mother-in-law suite. Even though the basement doesn’t currently have a kitchen, I had someone also move into the basement as soon as we moved in. We’ve only been in this house for about two months. As long as I’ve been here, I’ve also had tenants. I’m now living mortgage-free. My house hacking tenants pay all of my PITI and I’m living in a nicer house than I ever thought I could.

Let me get this straight. You bought something that you didn’t need to rehab?

Yeah. It’s crazy. The house was built in 1993 and most of it is original. It’s at the state where it was livable upon moving, but I will do the kitchens and baths. I modernized those and added some value there.

That is an interesting one, especially because you’re hacking the crap out of there. There are so many different units. I love houses like that where you’ve got multiple premiums, where you got the downstairs unit, the outside unit, and the RV garage. You can go to Home Depot and buy a couple of those tuff shed things and start renting out storage space.

Park some more trailers outback.

Get horses.

There is a horse barn.

There you go.

Before we leave this topic, I want to know how much you paid for it because you’re saying, “More than I ever imagined.” Is it a lot?

It was $700,000, which I know people in Colorado are like, “That’s like every house.” That is definitely on the upper end. We’re thinking about what we wanted in a house and in a property, and that’s what it took to get what we wanted.

After living through a few years of sacrifice living in rehabs, doing rehabs, and living in sketchy neighborhoods, whatever it is, you’ve built wealth and now you’re able to house hack in a little bit more of a luxurious way. You’re a prime example. If you’re reading this, you probably know Brandon Turner. He’s house hacking in Hawaii. After the sacrifice, there is a light at the end of the tunnel. It is hard to get out of house hacking because after not paying for your mortgage for 4 or 5 years, it’s hard to start paying for it again.

I was talking to my wife about the future and what we want. I said the exact same thing of how I don’t know how I’m ever going to go back to having a mortgage payment after having other people pay it for me.

That’s the opposite of lifestyle creep, but it’s the same concept. Let’s head into The Final Four. We’ll let Z kick us off.

What are you reading right now, Jonathan?

I finished a book called This is Marketing by Seth Godin. It’s an intro to marketing book. I was an Education major. I was a teacher for eight years. I know almost nothing about marketing and running a business, so that is my next step. If I truly want to grow and build the wealth that I intend to, I’ve got to learn how to run a business and how to market. Those are things that I’m focused on.

Can I give you a book?

Please.

Building a StoryBrand is amazing. He has a second book called Marketing Made Simple. This guy is a marketing genius, and it’s mostly understanding psychology and being genuine and empathetic. He gives you a formula that works. His books are super easy to read or listen to, so do it.

One thing I’m going to add to that, which I don’t know if it contradicts it, have you ever read the book, Who Not How?

I have.

That book got me thinking because I started going down that marketing path and I realized that I don’t like it. I’m not that good at it. I’m like, “Who can do it for me?” It just so happens that Zeona knows someone who is in the storybrand person, and I was like, “I can hire you and you can do it all for me and make it look better and sound better. I don’t have to be stressed about it.” If you are building your business and building your brand and you’ve got some money to invest versus the time, effort, and all that, I would recommend reaching out to Zeona and seeing that friend. I know her too, so I can introduce you as well.

Marketing strategy, SEO optimization, and making a legit website are definitely the needs that I have. Zeona, you were talking about Donald Miller. I’m a huge Donald Miller fan. I’m taking an online course from him. I second your thoughts. He’s an awesome guy. He’s easy to listen to, a great teacher.

First Deal: When someone doesn’t know what they’re talking about or is trying to fake their way through a bid, it is pretty obvious.

 

The second question is, what is the best piece of advice you’ve ever had?

I’ve got two. I’m going to cheat. One is you’re not thinking big enough. It’s the idea of self-limiting beliefs and how a lot of times our biggest enemy is ourselves. We set our own boundaries and our own limits as if you’re able to get yourself out of that and burst out of your own limits that you’ve set for yourself. You’re going to do way bigger things than you ever imagined. That’s something that I say to myself all the time.

My second piece of advice is your why has to be bigger than your how. If you’re starting to get involved in real estate and you’re thinking, “How am I going to buy this duplex? I don’t have any money to do this. I don’t know how to do that,” it’s going to be hard to get started. If you’ve got a solid why and it doesn’t even matter what that why is, but as long as you have a reason for investing in real estate, that is going to propel you forward. You’re going to figure out the how if your why is strong enough.

I wrote down, “You are not thinking big enough,” because I’m going to use that. I’m excited about it. Thank you.

You’re welcome.

That’s how you got yourself into a $700,000 house. You thought too big.

Twenty-two units in four years.

I still do it. I have to say that to myself every single day that when I get myself into those self-limiting beliefs, I’ve got to burst out of that and think bigger. There’s no reason that other people can do it and I can’t do it. I’m continuing to challenge myself.

Question number three, what is your why?

Like a lot of people, the first one is time freedom. Teachers have great schedules, but there are still a lot of limitations to a teacher’s schedule, likewise, if you have almost any W-2 job. I’m wanting to do what I want, when I want, for how long I want. I can go running in the middle of the day. I can hang out with my family. I can go camping on a Tuesday. I have a daughter now and a wife, so being able to spend time with them and do what I want.

The second one may sound callous but honestly, I want more money than I need. Whether that is in order to take care of aging family members, whether that’s to be a private money lender to other people when they’re trying to get started, whether it’s to donate to a cause. I want to be someone that my friends and family can go to, not to take advantage of, but for help, for investment. I don’t ever want to encounter a problem where I say, “I don’t have the money for that.” I never want money to be the issue. I’m not a private jet kind of guy so I don’t think that’s going to be the issue. I don’t want a yacht or anything like that. I do want to be able to solve problems that money can solve.

It’s great being able to have more money than you need. It’s not so that you could have those great things, but it’s so that you can help other people, help your family, friends, and whatnot. That’s powerful.

You’re good at building the engine, so why not have that all do it for you, and then you can use that interest to support other people? It’s great.

A few years ago, I would have been embarrassed to say that. I would have apologized for being such a capitalist saying that I want money. Money is not the end all be all, but it’s what it can provide to my life. Now, I’m able to say that unapologetically.

I’ve always found that money is a magnifier. It magnifies your personality so if you have more of it, you’re going to be more of who you truly are. You sound like a nice, genuine guy that wants to help other people. The more money you have, the more good you’re going to do. If you’re a jerk, the more money you have, the more jerk things you’re going to do. Last question, what is the craziest adventure that you want to do in your life?

The first one that comes to mind is rafting down the Colorado River through the Grand Canyon. That would be amazing. It’s super hard to get a permit. I know you have to do it at least a year or two in advance. That is definitely something on my list. That would be totally epic.

Jonathan, where can people find out more about you and hear more about your story?

I’m most active on Instagram. I’ll share about deals, before and after photos, and little real estate nuggets of wisdom. Check me out, @EnduranceProperties on Instagram.

Jonathan, thank you so much for coming to the show. This show was a blast. You’ve got a truly interesting story with starting out like a G, auctions, rehabs, cash, private money, driving for dollars. You didn’t do a conventional deal until your third house hack so that’s cool and it shows that there’s no excuse why you can’t get started. You just have to figure out how to get it done.

It looks different for everyone. You just have to get started.

Jonathan, thank you so much for the show. I look forward to hearing and following your journey. We’ll see you soon.

Thanks for having me. Bye.

That was Jonathan Hayek, everyone. Z, what did you think of that?

I love that show. It feels like reading Rich Dad Poor Dad or something. All the ABCs of investing, he’s done them all and mentioned all the tips and tricks. This one is a meaty episode that maybe you could even go back and reread to get all the ideas out of.

There was a lot of content. I feel like we could have talked to him for four hours. He’s like a walking audiobook. This guy has done almost everything real estate investing wise you can do in such a short amount of time, at least in the residential space. Maybe in a couple of years, we’ll talk to him again and he’ll be talking to us about the commercial.

I want to say a little plug. If you guys are out there investing, send us deals. I would love to see what you’re doing. We’ve been talking to a lot of people on the show, and I have a lot of people reach out on Instagram. Find my Instagram and send me an email. It’s interesting to see where you are investing and what kind of deals you think are good.

We would love to see your deals. I’m @TheFIGuy on Instagram. Z, what’s your Instagram handle?

@ZeonaMcIntyre to make it a little more simple.

Send us your stuff. Connect with us and interact with us on Instagram. I try to get back to almost all my messages. It would be super fun to catch with all of you guys. Speaking of connecting, if you also could leave us a rating, a review, and all that good stuff, it helps the podcast tremendously. It helps us get the word out there. It helps us, you, and everyone else to achieve financial independence through real estate investing. That’s the dream. That’s the goal. Z, anything else before we get out of here?

No. Let’s see you next episode.

 

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