ITF 97 Isaac | House Hacking

 

It is no secret that there are multiple ways to achieve financial freedom through real estate. One of them is house hacking. Tune in to this episode as Denver real estate investor Isaac Archuleta of Money Mailbox shares his journey on how he started investing in real estate and how he stumbled into house hacking as an investment strategy. He shares how this life hack led him to financial freedom at 30 years old! Isaac also talks about keeping his business in medical device sales, increasing his active income annually while doing house hacking simultaneously. Gain more beneficial tips and advice from Isaac as he guides you to house hack your way to financial independence.

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House Hacking: A Life Hack To Financial Independence With Isaac Archuleta

Big news, everyone. INVEST2FI has now partnered with RentRedi. We partnered with RentRedi because that is a software system that both Zeona and I used to do property management for our rental properties and make things super easy. We can send applications and get background checks and credit checks. When they come in, tenants can pay rent automatically through there. They can submit a maintenance request to everything you do from property management all in one place. That’s why RentRedi is the thing that we’ve done. I’ve been using them for years now. That’s why we reach out to them for a relationship on my show. I’m super excited to have them on board.

If you go to RentRedi.com and use the code INVEST2FI, you’ll get 50% off in your first 6 months. Sign up and use the coupon code INVEST2FI. We can’t wait to see you there. Hit us up on Instagram or wherever and let us know what you think of RentRedi because it’s amazing software. I use it all the time. You can access it on your phone. It’s amazing stuff. Thanks so much and let’s get back to the episode.

If you’re thinking about becoming a real estate agent like us, you might want to go to Kaplan. That’s where I got my license. I found that they made all this dull information interesting and memorable. If you are looking and getting your license see if they have your state, that covers a lot of states, but not all of them. If you want to get a little discount, use our code Invest2. Thanks, guys.

I’m here with my cohost Zeona MacIntyre, AKA Z money. Z is back in the house. Z, I miss you so much. You don’t even know. I was dying on the inside. My insides were coming on my outsides. It was fun, but it wasn’t nearly as fun as when you were here. Tell us what the heck you have been up to.

First, I went to the investor conference, which was fantastic. To any women who are wanting to get together with other women and learn about investing, get out there in 2023. It’s such a good conference. I then got COVID, went to Europe, and I’m finally here. I have bad internet and all these things. Life isn’t hard, but it gets hard with great internet.

You’re traveling through Europe and going to cool conferences. You came from that conference and got a little gift in COVID. Were you able to get into Europe with COVID?

I didn’t discover it fully until I had landed.

That’s a good point. If you’re feeling symptoms and are about to travel, don’t get tested until you get to the location. That would be the best advice that you get. It’s funny enough. I did the same thing. I went to Florida over Christmas and was like, “I don’t have time to get tested.” I went and got tested in Florida, and I had it. You’re not alone, Z.

It happens. This is where we are at these days. We have a wonderful guest. Maybe it’s just me getting back, but I found this to be a fun episode. Maybe it’s because it’s talking about STRs a little bit, and I love that space. It sounds like this is your house hacking brother from another mother.

Isaac and I had to go way back. It’s astonishing. I haven’t talked to him for a couple of years, which is too bad because we’ve got good energy. We’ve got a good connection. We are doing the same thing and believe the same beliefs. We both started at the same time doing the same thing. He reached out.

We grabbed coffee. I know we’ve hung out a few times, and he’s exploded. I haven’t even seen him in a couple of years. I’m so excited to see his journey and how much he’s grown his business and all that good stuff. Let’s bring him on the show.

Isaac Archuleta, welcome to the show. How are you doing?

Craig, I’m great. Thanks for having me on. It’s good to see you, Z.

It’s so good to have you. This is like a Blast from the Past. You’re one of my OG house hacking friends. I honestly don’t remember where we met. Do you remember where we met?

I slid into your DMS hard. I was at the gym, and I heard one of your shows. I was like, “This guy gets it. I think he’s in Denver.” I then was like, “I got to link up with this guy because we’re doing the same thing.” We were both baby investors at the time.

It’s fun to grow and see how our journeys grew in tandem. There are a little bit of deviations, but that’s all good. We’re going to know all about your story now. Why don’t you take us back to that moment when you were a little baby investor, maybe just before that, and tell us when you first heard about financial independence?

It happened by accident. I got out of college. I knew I wanted to save up some money for a truck out of school. My buddies at the time were paying $1,000 a month to live Downtown. I wish we could do that nowadays. It was a lot more expensive. I was like, “I should save on money and live with my parents.” I was like, “Maybe I’ll do that.” I lived at home with my parents to save money for the F-150 or F-250 I wanted. I wanted to buy it in cash. It was $60,000 at the time.

I saved up $60,000 living at home with my parents. I was eating every meal that they gave me. I don’t know what I was saving at the time. It’s probably $2,000 or $3,000 a month. I put all that aside and was ready to buy this truck, and then my dad was like, “What are your thoughts on picking up a car payment later in life and buying a house?” I was like, “That’s a good idea, but I’m afraid because I don’t know how much that costs.” My parents gave me the advice to put down 20%. I was like, “That’s going to blow up everything I have, but at least I’ll get the payment low.”

That was my very first house. It was a little, 3-bedroom, 2-bathroom house in the suburbs of Denver, Colorado. It had a basement that was all carpeted. It had the washing machine and all that stuff down there. My first house I bought was 20% down. It was pretty cool because I threw a couple of roommates in there to help me with the mortgage payment. The house at the time was $337,000.

Before we get into the house, I want to talk a little bit more about what your parents’ background is and your relationship with your parents because a lot of people’s parents are the opposite. You’re the first person to invest in real estate, and you’re convincing your parents to invest. Did you grow up with that? Does your dad have a rental real estate? Where did that come from?

My parents are not financially savvy or progressive in that respect. My dad’s a physician. My mom was the back engine office manager for that practice. My parents own the buildings where they operate the practice out of. That was about it. They had one other rental property, which was the first house they never sold. They have one rental from back in the day. They’re not by any means real estate investors, but they know that the house is fully paid off and that basically covers all of their bills for the month. That’s how they got a taste of what a rental property would look like.

The more you can save a month, the more velocity you're going to have in your portfolio, and the safer you are. Click To Tweet

They effectively know the differences between a Rich Dad Poor Dad asset versus liability. They realize that you were about to buy a liability when you could buy an asset to pay for that liability. Z, do you have anything to add there?

It’s great that they were able to get that light bulb moment for you, even though it wasn’t something they knew. It’s interesting how people can influence your life and take it in a whole different direction. I love seeing that turning point.

Let’s get into the nitty-gritty. You bought this house. You mentioned it was a 3-bed, 2-bath in the suburbs of Denver. Give us some more. What was the price? How did you finance it? Did you use that whole $60,000? Give us all the juicy details.

It was $337,000. I got it right on the list. I put down 20%, so that’s $67,400, which wiped me clean. I had $2,000 to my name, but I was convinced I needed to get this 20% down payment and knock off a PMI. I didn’t know any better at the time as far as scaling a portfolio and what I wanted to do. My mortgage payment was super low. My mortgage payment was $1,650. I was like, “Even for myself as a new kid out at school, I’m not making that much money. It’s still heavy.” I was like, “Maybe I’ll get some roommates in there.” Lo and behold, not many people want to live in the suburbs of Denver. They want to live Downtown, where it’s popping off.

I had to make it advantageous for them, so I charged $600 a month for the three bedrooms. I came out to $1,800 of income coming in. What happened is I lived for free. I made $150 by living in the basement. I didn’t have a closet. I didn’t have anything to store my clothes in, so I bought a little IKEA furniture and had all my clothes hanging up down in the basement. That’s how I got my first start living for free. That gave me the savings rate I needed to propel forward and some velocity to go.

When you said that you guys did the same thing, you were living behind a curtain and doing almost the same thing. It’s like you have gone out and picked out curtains together.

We could have been roommates behind the curtain. That’s so funny. What year is this? Give people a little bit of context of $600 in rent and $337,000 purchase price. This sounds like a few years ago.

That was 2017. I was 25.

To anyone reading this that is in their early or mid-twenties, or maybe even in their late teens, that’s the time to get in when you don’t mind living behind a curtain or IKEA closet or whatever it is, or in the basement even. Quick recap, it’s a $337,000 purchase price and a massive down payment of $67,000. That’s simply because you didn’t know any better. BiggerPockets wasn’t what it was in 2017 as it is nowadays. There wasn’t so much information about house hacking out there. There was no book on it, so you figured this thing out yourself. You were living for free. You said you’re getting $1,800 a month in rent on a $1,650 payment. How was the living situation? Take us through that. To people who are getting into this, what can you prepare them for?

The most daunting thing is trying to figure out leases. I don’t know how to do a lease. I just wanted my buddies to move in, but my parents were adamant. If you’re going to have people living in there, if something goes wacky, you want to make sure that you have something in place to protect you. It was more so trying to get my first leases because now, I have all my properties under property management. I don’t have to deal with the legalities of it. The most daunting thing for me was how I formally set someone up to live in my house and set up terms and boundaries. Things go haywire. Someone has a girlfriend over every night, and they’re causing a ruckus.

ITF 97 Isaac | House Hacking
House Hacking: Medical device sales and business sales have been key. You pair that with living lean, and you’re set up for success to hit a home run.

 

I have terms to get them out of there, and also how I restaff a new tenant in and make sure that it’s compliant with all the other people who are currently living there. That was probably the most tricky part of house hacking for me. It wasn’t anything to do with the purchasing or living situation. I would advise getting a cleaner. I would advise building that into the rent of $400 bucks a month, having them clean every week, and breaking it out between the roommates.

Where did you get this lease information? Nowadays, people can get them online. Even where I live in Boulder, we have a city official lease, but they’ve got them on Apartments.com. You can get them a Rocket Lawyer and all that stuff. What did you use?

One of my friends in the space had an extra lease, and I used that and tweaked the verbiage. I didn’t have all the resources there that were legally binding that I knew that this lease was truly up to code, but it’s better than nothing. I use that, and the rest is history. The number one thing that I could advise people is to progress forward. You don’t have to have all the answers at one time.

A lot of times, people get stuck in those small details. They’re like, “I have to hire a lawyer. We have to do the lease perfectly.” Honestly, leases hold people for a little while. If somebody is sketchy, they might not follow the lease anyway. It’s just a piece of paper. I wouldn’t worry about every single word being exactly perfect. You want to keep moving forward. I love that you said that.

You lived in that house for a year. Was there any renovation or anything you did to it? You were saying that the house was maybe a little bit janky with the weird carpet in the basement and all that stuff.

It was pretty tricky. It’s a typical rental. The cabinets were ugly, and the deck was beat up. Overall, the only thing I had to do for renovations was it didn’t have an air conditioning unit, which was $4,000. I had to do a sprinkler system, which was probably about $2,000 for that. It’s enough to get it up and running and humming. The key for me was to try and get my savings rate up so I could save for the next down payment. I like going real cosmetics. I don’t like to spend too much time and effort because the time value of money is better used on future investments.

A lot of investors, especially new investors, get caught up on what they’re seeing on Instagram, with people flipping houses or Flip or Flop. For a rental buy and hold, all you need to do is make it livable because the people are renting. They don’t care that much about the grand features. Don’t waste your money on all the crazy stuff. Get the house up and running so they can be comfortable. That’s it. I made that mistake, and I know a lot of people have made that mistake.

I would do the same with Airbnb. I buy them turnkey and ready to go because I want to furnish it and get it rented. A lot of people are going to spend 3 to 6 months down the road where they’re paying that interest every month or their mortgage payment to get it up and running. Don’t waste your time with that. Get a go.

In 2018, you moved out of that property. What do you rent your room out for?

I didn’t rent out. I made everyone move out because I was sick of all of the independent leases. Everyone has different life agendas and tries to sort with it. I had everyone balanced and leased it out to a single-family.

The critical thing that you should focus on is how you clear your mind of distractions so you can earn more income. Click To Tweet

What did you rent it for?

At the time, I rent up or $2,100.

You were getting essentially the same amount then. That’s an interesting point. That’s why when you’re going to do the rent by the room strategy, we’d like to recommend where you want to get something with at least 4 or 5 bedrooms because Isaac proved the point there where three bedrooms are the break-even point. You can probably get about the same for 3 bedrooms, but if you do 4 or 5, you’re getting incremental. That’s where your profit comes from. I 100% do not blame you for doing it with what you had there. It’s $2,100 on a $1,650 mortgage. You’re cashflowing a couple of hundred bucks after you set some aside for expenses and all that good stuff. What happens when you move out? Where do you move to?

I moved into a duplex. I had an agent that found an off-market deal. It was a duplex. At the time, everywhere I was looking was 15% down conventional for a duplex. What I didn’t realize is that in FHA, you can do multifamily for 3.5% down for 1 to 4 units. Duplex worked for me. What I wanted to do was lease out one side of the duplex and get one roommate, not as many as I have before on my side. The numbers worked out beautifully.

I was living for free. The other property was cashflowing. I always say savings rate. The more you can save a month and the more velocity you’re going to have in your portfolio, the faster you’re going to go and the safer you are. I always look to house hack in whatever way that I can. Rent by the room was my first one, but the duplex was the next best thing to downsize the amount of tenants that I was living with.

I love how you know what your lifestyle is, and you’re going to adhere your investment style to your lifestyle. Let’s get into that duplex a little bit. Where was it? How much does it cost? Let’s get into the numbers a little bit.

This is a great one. I bought it for $525,000. I put 3.5% down plus your closing costs. My overall mortgage on that one was right around $3,000 at the time. I rented out the other side for $1,500, and then I had a roommate on my side for $800. I was pretty well buttoned up. My cashflow from my initial property was almost covering everything because there’s still a little bit leftover after all of my tenants were paying on the duplex that I picked up. You’re essentially living for free or a couple of hundred bucks, and your savings rate is about the same.

Your whole thing was, “Let’s eliminate my rent expense.” That’s the biggest thing. You didn’t care too much about cashflow of $1,000 a month or anything like that. You just know that you own real estate and will be wealthy.

I don’t live by the frugal mindset. That has never worked for me. I’m more of a hunter. I’m in sales, so let’s make more money.

I want to go back to the velocity and savings rate thing. You didn’t do this all perfectly to the maximum you’ve had. For someone reading this or reading The House Hacking Strategy, they’re going to start it perfectly where they’re only putting 3% down or 3.5% down. They’re going to maximize everything. They’re going to rent all the rooms. Even so, you were able to get to this place where now you’re almost seven properties in. You don’t have to maximize everything. You don’t have to kill yourself being frugal. Real estate is very forgiving, and I love seeing that in your story.

ITF 97 Isaac | House Hacking
House Hacking: Lifestyle inflation is a real thing. When you start to make more money, you want to have a more luxurious lifestyle, which can slow down the progression of a portfolio.

 

The key thing I focused on was how I clear my mind of distractions so I could earn more income. A lot of times in real estate investing, we talk about this frugal mindset of, “How do I get as lean as possible?” You then find a bunch of people that are making $50,000 a year trying to scale a portfolio. I’m trying to figure out how I earn $250,000 a year, have active income, and live for free, so you’re taking that savings rate and reallocating it into investments. I focus more so on eliminating my housing expense, not necessarily optimizing cashflow to get $1,000, $2,000, or $3,000 a month per property. I’m more about how I live for free, eliminate my housing expenses, and get my active income high.

I want to ask you one more question because you said frugality wasn’t a thing for you, but you still lived in the basement. Was that because you were a single guy and you didn’t value that aspect of your life at that time in your life?

It was a necessity because my active income had not risen to the point where I could afford to live on my own, afford a down payment on the next house, and have reserves in the bank. My first couple of properties, my first were a single-family, and then I did a couple more duplexes. Those were traditional house hacks, but they weren’t optimized to the level of staffing 6 or 5 people in there. I had to be frugal at the beginning to catch up with my active income to the point where I could sustain my lifestyle without roommates.

It’s very important what you guys preach of getting roommates and getting your housing expense paid for. If not profiting on it, it is extremely important, particularly if your career isn’t giving you the active income that you need in order to scale, you need to find income elsewhere, which is AKA house hacking, which is exactly the model that you guys talk about.

The more you spend, the more of a headwind you have in terms of hitting financial independence. The less you spend, maybe it becomes more of a tailwind. That is the foundation of it. Some people don’t mind being frugal forever, but I’m not that frugal anymore, believe it or not.

It’s like ordering water the first time we went to that coffee shop.

That still happens. I don’t care to drink beer or anything that much, but I’m spending on things of value. We have a nice house now. We take nice vacations. It’s that stuff I value. I suspect you’re the same way. Z, I know you’re the same way. It’s all about where you are in your journey. We’re heading into 2019. Tell us a little about your job and what you’re doing. What is this active income that you’re trying to increase?

When I first got out of college, I started selling business to business sales. I was selling payroll software. People would pay their employees on a Friday and need software to deduct their W-2, their health insurance, pull out their taxes, etc. I was knocking on every mom-and-pop store, trying to sell them our payroll software. That’s how I got started in sales. I cut my teeth and learned how to sell. I did that for two years and made decent money.

I truly blew it out of the water in my company two years in a row. I got picked up by a medical device company to go and sell it to physicians. That’s when the active income started to be noticeable to the point that I didn’t have to be quite so frugal because I had enough active income coming in to fund my down payments and create reserves, so we’re scaling safely.

Medical device sales have been my bread and butter, and I still keep my foot on the gas there. I double dip corporate and also build my portfolio on the side because a lot of times, people want to say, “I want to be a full-time real estate investor.” They drop their active income and just rely on their passive income, but it’s hard to qualify for loans. It’s also hard to have a velocity to scale a portfolio if you don’t have that W-2 income coming in. Medical device sales and business sales have been key. You then pair that together with living lean, if not positive, in the green. You’re set up for success to go hit a home run.

If your career isn't giving you the active income needed to scale, you need to find income elsewhere. Click To Tweet

I’m curious. If you’re bringing in this high income, does that change the way you buy your next duplex? Did you go from a simple duplex to a luxury duplex?

Believe it or not, I bought the ugliest duplex in the next one, even when I was making good money. I own three duplexes. My 1st, 2nd, and 3rd were all ugly. They’re all the same specs and in the same pocket. It’s all the same lifestyle. I lived 700 square feet on each side. I lived in a small 2-bed 1-bath and then rented out the 2-bed 1-bath on the other side. All of them are the same. I didn’t increase my lifestyle. Lifestyle inflation is a real thing. When you start to make more money, you want to have a more luxurious lifestyle. That can slow down the progression of a portfolio. I tried to live within my means and keep the same quality of a duplex that I was buying.

I love that you were able to be disciplined like that. Being able to identify, recognize, and put words to that lifestyle, you can identify when you start, “I’m starting to buy more stuff.” You can almost be like, “I got to dial that back.”

For my 3rd property, which was my 2nd duplex, I put down 15% conventional on that one. I did so on my following duplex as well. It has to do with where you’re at in your income streams. It’s good to put low down payments, so then you leverage more debt and have more money for reserves and repairs. At the time, I had used my FHA loan, which was 3.5%. I was out of options.

The only way to buy a duplex, unless I found one loan program that you can do otherwise, was 15% down. All I knew was I could not live with more people anymore. I’m done. I’m making good money. I can’t live with four guys. I need a duplex. I made it happen and was able to get a 15% down payment. It almost killed me, but that property now cashflows like a pig. You get your money back when you put it down. It’s just sometimes you’re scraping the bottom of the barrel there.

You have to remember that the money you’re putting down is equity in the house. A small portion of it might be closing costs and stuff. You have probably too many to go into each individual one. We probably should skip ahead to something a little bit more present. We talked about your first two deals. You were scrappy.

A lot of people should start exactly the way you do. It’s being fairly frugal, even though you said you weren’t, but you were at least in the beginning. You then methodically pick up 1 or 2. Let’s skip to something a little bit more present. Let’s get a little bit more present times. Let’s talk about the most present deal that you purchased. What did that look like?

The most present deal as the one I’m in now, and I’ve upgraded my lifestyle a little bit, but the reason why I got into this deal is it’s a townhome, and everyone’s been overbidding. Denver has been crazy. I didn’t want to get into a price war because I was trying to scale. I bought a new build townhome. It’s almost identical to my previous townhome as far as the finishes and everything that it has. The one I’m in now is a 3-bedroom, 3-bathroom townhome. It’s in the upper part of Denver. It’s young and trendy.

What’s awesome about the townhome that I’m in now is the previous house that I bought was like it, but it had great zoning. This zoning allows for a short-term rental that’s a non-primary residence. That particular deal is my number one cash cow. I put down 5% conventional on it. My mortgage on it is about $3,000. I gross probably about $6,500 of income on that.

You’ve got two properties that are like this. I have lots of questions. One, what part of Denver is that?

ITF 97 Isaac | House Hacking
House Hacking: How do I get as many assets under my control as I can, make sure they’re all profitable, and I have six months of reserved mortgage payments for every property, so I never worry about how to recover if market rents drop?

 

I’m not going to say that.

In this mysterious part of Denver that may or may not exist, tell us what the purchase price looks like on those properties. Tell us what those numbers look like and what it looks like when you’re living there versus when you move out.

I’ve moved into these townhomes and rented them out behind me. When I moved into them, they were heavy. In my very first short-term rental, I lived on my own. That’s my own primary residence. I bought it for $550,000. I was floating that payment, which is $2,850. For a single guy, $2,850 on your own is like, “This is a little heavy. I don’t know if I can scale.” The reason why I bought it is because in this particular property, you can short-term rent as a non-primary residence when you move out. I was like, “It’s worth getting into this deal because I know the upside of it.”

My savings rate was very low compared to what I was used to, but I knew that after I moved out of it, I was going to recoup my costs, and it’s going to be a great hold for the long-term. I found a similar deal and bought this one for $737,000. My mortgage payment on it is $4,000 heavy. I got a roommate to help take some edge off. He only pays $1,000 a month, but it’s enough for me to be able to manage it. I can turn around and do the same thing on this particular property.

The reason why I got into these townhomes is for two reasons. One is Denver was so competitive that people were offering $30,000 or $40,000 above the asking price. If that property doesn’t appraise for that value, you have to cover the spread with cash. You have your down payment plus the cash of the spread. It will wipe you out. Most people can’t do that, so what I wanted to do as a new build was to lock in my fixed price, know exactly what my down payment is, and move on to the next one.

One of the things I love about new builds, and this doesn’t always happen, but it generally does, is that they’re built in sections and series. If you buy in at that first early section, you often get an equity bump every single time. If they’re finishing different parts of it, you’re going to come out with a lot of equity right out of the gate. Not only did you not overpay and deal with all that, but then you’ve got a place where you may not have much to repair for 5 to 10 years. It’s a win-win.

On my duplexes, I have run into several repairs that are large, like sewage lines and different electrical and bathroom repairs. With a new build, it’s been nice not to have any of those repairs. It keeps you lean. You do your 5% down payment. If you live in it for ten months, get something else under contract, and then you’re off to the races.

I’m trying to be exactly like Craig, even with sewage line problems.

It might be the opposite. Maybe I’m trying to be a lot more like Isaac, which is the real way. It sounds like the base of the strategy is you move into this place. You’re still buying it with a 5% down or low down payment. You’re still doing all the house hacking methods. You’re going to get a roommate while you’re living there, so you’re not having an Airbnb in the place that you live. When you move out is when you put it into an Airbnb.

You mentioned the first one was $550,000, and this one was in the $700,000. Why is it so much more if it’s very similar finishes and stuff? Was it what the market was doing? Are you in a different area?

The easiest and most proven model to make money is always going to be real estate. Click To Tweet

It’s a different area where people are renting more by the room. In a trendy part of Denver, people are paying anywhere from $1,300 to $1,500 a room. I bought the second one in a more trendy area. I felt more comfortable going with a higher price point there.

Let’s say those rules change. They say, “We don’t want to allow any more short-term rentals.” Do you have a plan B?

This is important. This is how I buy all of my properties. If you have to revert back to a twelve-month lease, it still must break even. All my properties, I buy them. I do cosmetic lipsticks. Even on my new builds, I will deck them out with mounted TVs, anything that I need to enjoy while I’m here. If I, for some reason, need to convert it back to a twelve-month lease, I can always lease it out fully furnished and break even or be positive in my cashflow position.

I want to highlight that when places make the regulation switch and say, “We’re making these illegal,” they will often grandfather people that have already been doing it. That happens to me in Colorado Springs. That’s a great advantage because now no new places can come in, so we don’t have any competition, but we are one of the OGs that have a license. That’s awesome.

I’d love to know where you’re at, where your strategy is going, and all that kind of stuff. I want to remind people that this entire time, Isaac has been working a W-2. Real estate investing doesn’t even take most of your time. That’s what we’ve been talking about. Most of your time, I suspect it’s still selling medical devices.

You guys are so good about your cashflow. That’s the one thing I’ve always appreciated about you, Craig, as you’ve always done a way to find cashflow. That is so important. One of the things that I had to do is I had to take a haircut on my cashflow in order to standardize because the majority of my units are all twelve-month leases.

When you have 12 duplexes and got 3 of them, that’s 6 families you’re managing. I had to take a haircut on my cashflow by outsourcing to a property manager. It is this peace of mind, so I can go out and crush it in my job. I would rather go out with peace of mind and make an extra $60,000 or $70,000 in commission than be bogged down, not focused, and miss out on that active income because all that I care about is my next down payment.

I’m curious. What is the next step? You did a single-family home, and then you did duplexes. Now you’re doing some Airbnbs. Are you going to go out of state? Do you want to attend places? What’s the goal?

I’m old school. My goal is to get to ten primary residence owner-occupied properties. By the time I get to my 10, my first 5 will be ready to do a cash-out refinance. I’ll probably pull out about $125,000 to $150,000 from each property and mirror that for a profit of $315,000. A lot of times, there’s not an end game. We’re just talking about, “How do we get more cashflow?” In my opinion, we need to get up upwards of $10 million worth of assets under control so we can get our equity positions higher up so we can start doing larger. If I want to do larger deals, I want to do apartment complexes, but I want to do them on my own.

I don’t like partnering with people because there are too many variables in life. It’s better to run your show on your own. What I figure is I’m going to buy my next, so I need to buy properties 7, 8, 9, and 10, all at small down payments. I’m talking about 5%. You get ten properties under control. By the time you get to your 10th property, the property 1, 2, 3, 4, and 5, if you bought them at 5% equity, they’re probably upwards of 35% to 45% equity. What do you do? You leave 20% equity in your house and reallocate the excess equity, which is tax-free, into a future down payment. By the time that you get your 10 first primary residences, you can buy 11 through 15. You now have fifteen properties that are all allocated to gaining equity and cashflow, and you’re well on your way to becoming a big wig real estate investor.

ITF 97 Isaac | House Hacking
House Hacking: The time value on that money sitting in lazy equity is much better suited to being put into another deal and using that velocity of your money to go and make more money.

 

It’s how you can BRRRR without doing any rehab because the market likely, especially in Denver, will appreciate enough in ten years so that you can then keep reallocating. That’s a brilliant strategy. The only caveat is that you probably need to stick to your W-2 or qualify for all those loans traditionally, but if you’re loving that W-2 or making a lot of money at it like you are, it’s well worth it.

I’ve been a fan of a double dip. If I were to jump from my job now, I could probably make something work. If something is working, stick it out another five more years and continue to play the long game because I want myself to be happy and proud that I stuck to the game plan and accomplished it versus jumping prematurely at something that’s a shiny object. You become the shell of what you could have been.

That’s why you want to start early if you can because people I find have a lot of momentum in their twenties. They’re excited, hungry, and doing stuff. Maybe other people hold that all through the 30s. I’m already like, “I want to hang out.” It depends on who the person is. If you start early, it makes it so much easier for you to enjoy the rest of your life in a peaceful way.

The thing too is money is money. We can all agree money is money. You have one house, and it goes up $35,000 in equity a year. I don’t know when’s the last time that you did nothing and made $35,000. This is real cold, hard cash. If each house is going to go up $35,000 or $50,000 a year like we’ve been seeing, that’s not always realistic, but that’s real money. When you get to the point where you have ten assets under control, and the market goes up by 5%, you’re making hundreds of thousands of dollars of cold, hard cash that you didn’t do anything for.

While I’m interested in cashflow and cashflow is a necessity to scale faster, I look at it as a more holistic view. It’s saying, “How do I get as many assets under my control as I can, make sure that they’re all profitable, and make sure that I have six months of reserved mortgage payments for every property so I never worry? If market rents drop, can I cover that? Absolutely. If I have a pipe that burst, no problem.” I’m more so thinking in the long-term of what is my 40 or 45-year-old self want, and that’s a lot of properties. The cashflow will come when you reallocate that equity into bigger deals.

I want to mention one thing. When you reallocate those deals, your cashflow on those initial deals will go down because your monthly payment will be higher, but you’re able to get more properties that will cashflow to replace that. You’ve got two properties with the same dollar that are now increasing in equity, tax benefits, and all that other glorious real estate stuff.

Let’s say you’re cashflowing something nice. You’re cashflowing at $1,000 a month. Let’s say that you do a cash-out refinance, and now you’re only cashflowing $500 a month for easy math. That’s $500. By reallocating that capital into a different house, you’re making a lot more money. Where a lot of people get hung up is they don’t want to lose their current interest rates. They’re worried about their beautiful cashflow of $1,000 a month, but I can guarantee you that with reallocating that equity, the time value of money on that money that’s sitting in lazy equity is much better suited being put into another deal and using that velocity of your money to go and make more money.

Let’s have a little bit of a recap. You’re more of the house hacking guy than I am, honestly. You’ve done 6 going on 7 house hacks. I’ve done six. I have now thrown in the flag. I don’t think I’m going to do any more house hacks. We bought our forever place. That’s your journey, and that’s it. Our stories are so damn similar. You started off in 2017, living behind a curtain, and scrappy as hell just to get the next property and the next property. Every year, you systematically buy another one. It increases cashflow and appreciation, all that good stuff. I got an appraisal back for my first property. I’m curious as to what yours is at now if you haven’t gotten a price.

It’s worth about $550,000. I bought it for $337,000 so it’s $200,000.

It’s $200,000 in 5 years doing nothing. I was a little more fortunate. Mine went from $385,000. I bought it in a shady part of Denver years ago that now is a nice part of Denver. It went from $385,000, and I got an appraisal back at $800,000. I was like, “Holy smokes.” That’s almost $100,000 a year. That is a good salary for a lot of people. I’ve done nothing except fix a little bit of sewer issues and maybe some noise issues. Overall, I’m on the positive.

Sometimes, the next job or promotion is going to take way more than it gives you. Click To Tweet

That’s so good. That’s why we started teaching people. As with you guys, we started making some money in real estate. You realize this is the easiest dollar you can make truly because you can go out and slave over doing a startup business or whatever you want to do. The easiest and the most proven model is always going to be real estate. That’s why we started this company because we wanted to educate people on how to start investing in real estate and how to take away the barriers to entry because there are so many misconceptions about real estate that say, “This is for rich people to do. This is for someone other than you.”

It’s not true. It’s all about truly educating yourself to understand that you can do this, but the simplicity of real estate keeps most people from it because it’s so simple that no one wants to do it. They want the glitzy, glamorous startup techie thing. All I know is you save up a down payment, put it down on the house, and do that as many times as you can.

What is this company? Tell us a little bit about this.

Me and my two friends who are in real estate started this company called Money Mailbox. It’s a real estate education company that produces video courses to help people on their real estate journey. What I’ve found is that the practical advice wasn’t quite there. I was piecing together from every angle and reading all these books. I was trying to figure out how to formulate my strategy. What I wanted was someone to tell me what to do. That’s how Money Mailbox came to fruition. We decided, “Let’s create some courses to help people buy houses.” We created video courses for that.

We have our own in-house agent that we were able to help our clients find properties that we would want to buy, but we didn’t have the money for, and we would help them get into those homes. What’s cool is we’re able to help them on their journey of real estate investing and get started. All of a sudden, you realize that it’s not that complex, and you just need a little guidance. That’s why we started Money Mailbox.

I love that you’re taking what you learn. It’s important. As you go on your journey, there are so many people that have helped you out. Things were better for you than they were years before you, and now your mission and our mission is to make it easier for the generation after us. It’s much easier than it was when we were starting out. Having that flow is amazing. Making sure you contribute some part to that to give back is amazing.

It’s important. The thing that I most appreciated was when someone went out of their way to help me. That has just done so much for my gratitude because you start to enter a realm, and you guys are probably getting into it too when you realize that you’re starting to take off. It’s not any bit of an ego thing, but it is money, and it does matter. It’s nice to have that humble moment when you realize like, “If I could help one person get into their very first house hack, it does change someone’s life.”

Real estate has changed all of our lives. I always laugh because I’ll have buddies, and they’re like, “I just landed this dope job.” They’re making some great money, and it’s phenomenal. You then look at things side by side and think like, “My houses are producing pretty good too.” You don’t have all that pressure of having to always take that next job because sometimes the next job and the next promotion are going to take way more than it gives you. It’s going to give you some more money, but it’s going to take 80 hours a week of working.

What real estate has helped me do, and I know a lot of people do, is have a more sane mind when it comes to your W-2 job. You say, “As long as Craig can save up for that 5% down payment next year and has some money for his reserves and repairs, he doesn’t need to take that next job because he’s worried about buying the next house. He’s not necessarily jumping on every flashy object that pays more that he’s going to hate his job for.” Real estate also is very complementary to a W-2 job and taking some of that pressure off of having to take that next promotion.

It’s such an interesting perspective. It makes working a lot more fun when you don’t have to do it. You’re still living exactly. I don’t know what your actual numbers are. I’d love to know if you’re willing to share. Where is that at?

ITF 97 Isaac | House Hacking
House Hacking: The simplicity of real estate keeps most people from it because it’s so simple that no one wants to do it.

 

My monthly cashflow is about $5,000, depending on repairs.

Just because you’re working with a W-2 job doesn’t mean that you’re not financially dependent and not loving every life loving your life. You’re doing exactly what you want to be doing. That’s amazing, and there’s no stress. You look good. You can tell that it doesn’t seem like you’re very stressed out.

I enjoy interacting with people on a daily basis. I love being out and about. All of a sudden, you’re interacting with people, and they think you’re unique because you’re a W-2 person, but my mind isn’t on my W-2 job so much. It’s more so on, “How do I create this side business?” It’s because the side business is going to take care of your family when you’re 40 or 50 years old. I don’t see real estate investing as something like, “This is impacting Isaac right here and right now.” All I want to know is that at 45 years old, when you’ve got a bunch of real estate, and it’s paying all your bills, that’s what I live for. I don’t live for now feeling like, “This is life-changing money.” I’m more so by saying that my 45-year-old self is going to look back at my 25-year-old self and say job well done.

It’s a job well done, I’ll tell you now. It’s time for us to move into our final part of the show.

Z, kick us out.

Isaac, what are you reading now?

Here’s a fun fact about me. The only book that I read is the Bible. It depends on what time of the year I’m in. Now, I read I’m reading Revelation.

I’m glad it’s true because it sounds like a little Miss America where you’re like, “The only thing that I want is world peace.”

That’s the only book that I read. I get most of my information on podcasts, YouTube, and stuff. I find that in my retention of information pertinent to real estate investing, finance, or anything like that, I can generally get it summed up from a quick YouTube video. I don’t like wasting my time with that. I’ll jump on something that you guys are talking about and learn a new strategy here in five minutes. To sit down and come through a 250-page book to try and extrapolate out something of context that I could use, I don’t think it’s a great use of my time. I try and find my information elsewhere, and then I read the Bible on my own.

I’ve got a question about your Bible reading, if that’s okay. When you read, do you read one passage? Are you trying to dig deep into one little part of it? How does that go for you?

The next step of faith is always the hardest. Click To Tweet

Normally, I read a book at a time. For a couple of months, I’ll read the book of John, and for a couple of months, I’ll read Genesis. I try to focus on one particular book. For each day, generally, I’ll read one chapter and explain it back. When you read something, it’s one thing to read it, and it’s another if you can explain it. If you can explain what’s happening in that particular chapter, you truly understand it. That’s been the most fun part about the Bible. As Christian, we believe that it’s the word of God. It’s alive. It’s fun because it never gets old.

Second question, what is the best piece of advice you’ve ever received?

The best piece of advice that I’ve ever received is the next step of faith is always the hardest, whether you’re thinking about your first down payment. Maybe you are like, “I don’t know if I can do this,” or you’re thinking like, “Maybe I should boot up this podcast, but I feel like I’m going to be intimidated because I don’t know if it’s going to make me feel bad if I can do this.” Maybe it’s, “I want to go on a trip, but I don’t know if I can do this.” I’ve always heard that the next step of faith is always the hardest, so focus on what’s that next obstacle where it seems a little scary and daunting. Generally, if you can get over that mental hurdle, it’s going to free you up to a whole different set of options that’s contingent on that one step of faith of taking action and stepping out.

I have an idea about this one. What would you say is your why?

My greatest fear is unrealized potential. My why isn’t necessarily to say that I’m worth $15 million. My why is to look back at my life and not have any regrets about a life uncapped. On a car, there’s a governor, so it doesn’t go too fast. An Audi might top off at 120, but that thing can push more. It’s just they put a governor on it. One thing in my life I want to do is eliminate my own governor of my own life and see truly that if you live a life that you go for it, what does that truly look like? The why for me is I want a life unhindered.

Last question, where is the most embarrassing place you’ve ever farted?

I wouldn’t say farted, but I shat myself one time in PE class. It was high school. I was a freshman or sophomore, and we were all sitting on the basketball court. We’re getting ready for them to take attendance for our thing. I trusted the fart, and I shouldn’t have. Unfortunately, they’d lock the locker room, so you can’t go in and tamper with people’s clothes and stuff. You can play out the rest, but that’s where I trusted a fart, and I shouldn’t have.

Where can people find out more about you? You mentioned Money Mailbox. How do they take a look at that and all that good stuff?

If you want to find me, my real estate company, along with my two business partners, is called Money Mailbox. You can find us on Instagram @MoneyMailbox or online at www.TheMoneyMailbox.com. There are tons of resources on there for you as well as some courses. If you want to follow me on my personal, my Instagram is @IsaacAbran. Thanks so much.

Thanks so much for putting on the show. It was so great to catch up and know what you’ve been doing these last couple of years.

It’s good to see you. It’s awesome. It’s so fun to watch your journey.

We’re going to have a lot to catch up in person next time I’m down in Denver. Thanks so much for coming on it. We’ll talk soon.

Thank you, guys. Have a good one.

That was Isaac Archuleta. Z, what do you think about Isaac?

I’m proud of you for getting that out and being super hype. I don’t know if this is the new Craig or if this is just Craig plus Z, but I’m appreciating the hype.

It’s just me missing it being back, seeing your face, and talking to you. It puts me in a good mood.

I thought Isaac was also a cutie. He had a great story. He’s got a methodical plan. I felt all of his talk about philosophy and using your savings rate to push you forward. It seems like he had a great way of thinking about his future and planning for himself. I liked his story there.

I love that he’s super intentional. He doesn’t chase a lot of shiny objects. A lot of people start to get their 3rd, 4th, and 5th properties. They start to get confident, and they’re like, “I want to start raising money in doing syndications.” I’m in that boat. They start wanting to do all this stuff and grow faster, bigger, and stronger, but he’s like, “I don’t want that stress. That’s not part of my plan. My plan is I’m going to continue to house hack once a year.”

For ten years, he’s going to house hack, and then he’s going to use the profits from his first house hack. It’s been funneled into the second. In a ten-year period, real estate is likely going to build up. Almost in every scenario, you’re going to be able to refinance that 1st house and get the 2nd one, the 3rd, the 4th, and all that good stuff. I admire what he’s doing.

It’s really smart. It made me go, “I should have been doing ten owner-occupied loans. Why didn’t I think of that?”

It’s super efficient. You can’t do it all. You can’t do everything. Everyone’s journey is different, and it works for them. He loves working on his W-2. Z, if I know anything about you, I can’t imagine anyone telling you what to do would go very well. Everyone’s journey is different, and that’s super important, but it’s good to hear other people’s journeys, take bits and pieces, and make your own. Z, anything else you want to add before we hop off for this episode?

I just want to take a shower because I’m here in the middle of a heat wave in Europe. That’s not as glamorous as it sounds. I’m going to do that.

Z is going to the shower, and what we want you to do is leave us a rating and review on iTunes. Let us know that you did. Shoot us a message on Instagram on @TheFIGuy, and Zeona is @ZeonaMacIntyre. We will see you guys all next episode.

 

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About Isaac Archuleta

ITF 97 Isaac | House HackingMeet Isaac! He is a real estate investor in Denver, Colorado. He purchased his first single family home at the age of 25 and has house hacked his way into 6 homes, achieving financial freedom at 30 years old . The key to his success is annually increasing his active income in Medical Device sales while, living far below his means. His goal is to continue investing and increase his financial freedom opportunities by moving equity from his current properties into additional rentals.

Isaac also has started his own real estate education company, Money Mailbox, to help others become educated in building their own rental property business.

Isaac’s goal is to use his 30’s to increase his cashflow positions while adding more homes to his portfolio. The key to Isaac’s success is one thing: Buying the next house. Focusing on the next downpayment allows for Isaac to stick to the gameplan: The capital required for his deals are a 5% Down Payment, 6 months of reserves to back up that property, and some additional money for a cosmetic rehab. Rinse and repeat the plan by moving every 12 months into another primary residence property.