Progress Over Perfection: Building Wealth w/o Any Home Run Properties

Ashley Kehr:
This is Real Estate Rookie, episode 155.

Ali Garced:
As long as you purchase a base hit, and you keep doing that consistently, you will look up one day and realize how far you’ve gone. So I have gotten consistent base hits, and I’m pretty good with that.

Ashley Kehr:
My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie Podcast, where we give you the nitty-gritty details on how to get started as a real estate investor. But more importantly, we give you the community you need to stay motivated and make things happen. So, Ash, what is going on with you today? How are things in Buffalo?

Ashley Kehr:
Well, I’m still on the couch, it’s my new podcast suite, still got my leg elevated with ice. I go and get my MRI in a couple hours. Looks like it’s going to be an MCL tear ,and maybe an ACL tear too. This is really awful. This is my first real big injury where I’ve been laid up for more than a week, so it’s definitely been a change, having to have somebody chauffeur me around, just even getting something to eat. But I heard you moaning and groaning a little bit too?

Tony Robinson:
Yeah. And man, I don’t know if the injuries are contagious or what, but I was at the gym. I’m training for a fitness show right now, so I’m trying to lift heavier weights than what I typically do, but I’m usually pretty safe. Anyway, I was at the gym this past Saturday and I was doing squats, and kind of felt my back tighten up a little bit, and I didn’t really think anything of it.
Then I woke up the next day and I could barely get out of bed. And this morning, it’s the same thing. So I pulled a muscle on my back three years ago on my lower back, so I don’t know if I maybe re-aggravated that. So I’ve been hobbling around the house all day like I’m 80 years old, so hopefully it’s nothing and it goes away soon. Hoping it’s not anything bad enough where I need to get a x-ray or anything like that.

Ashley Kehr:
Well, for those of you that are watching on YouTube, can you agree that it would be a lot more enjoyable if Tony was also on his couch with heating fans and we just kept it super casual?

Tony Robinson:
I was just going to say, one other cool thing that happened. For those of you that follow BiggerPockets on Instagram, I took over their IG yesterday. That was a lot of fun. The way that the podcast recording works, this is going to come out way, way afterwards. I took it over in December, but this episode’s airing in February, but it was really cool. I spent the whole day kind of taking the BiggerPockets Instagram audience through a day in the life of us going through some of our properties.
So we stopped by some rehabs we were working on, one that we had just recently finished. We stopped by a short-term rental that was in the process of getting set up, one we’d just recently finished setting up, we were having guests at. So just a really fun day, kind of showing people behind the scenes in the life of a short-term rental investor. Obviously, if you guys want to see more insights, you can follow me on Instagram at Tony J. Robinson. If you want to see Ashley and how she looks laid up on her couch, you can follow her at WealthFromRentals, but it’s always kind of cool giving folks behind the scenes on the IG stories.

Ashley Kehr:
Yeah. I actually saw them yesterday, Tony, and I was going through and I was like, “Yeah, yeah, it’s Tony.” And then you turned the camera on Sarah, and she took over. And I was like, “Yes. Now I’m watching.” Tony’s like, “Sarah is so awesome.” And she went through and how she managed that flip by herself for her first time doing it, and she did a great job.

Tony Robinson:
She did a phenomenal job.

Ashley Kehr:
So Sarah, I know you’re listening, because you love to listen to me, and not Tony. Congratulations, and great job.

Tony Robinson:
Well, let’s talk about today’s guest. We had a rockstar of a real estate investor on today. Ali Garced, she is active duty military, she’s also a real estate agent, and she’s just crushing it in multiple markets right now doing buy and hold real estate investing.

Ashley Kehr:
Yeah. This is a great show, and we kind of take a little deep dive into the VA loan and how she has taken advantage of that. Also, how her first deal, she felt like she did not hit a home run or even a base run. She actually got discouraged. And then, how she actually turned that around by not just looking at cashflow, but looking at equity in the property too. And then got herself re-excited about real estate, and has invested in multiple out-of-state markets too.

Tony Robinson:
Yeah. And I think there’s one part that I want all the rookies to listen for, because I’d learned a lot during this conversation, was about why she walked away from some properties that had illegal additions. So just make sure you listen for that part, because there’s a lot of good information there as well.

Ashley Kehr:
Let’s bring Ali onto the show. Ali, welcome to the show. Thank you so much for joining us. Can you start off telling everyone a little bit about yourself and how you got started in real estate?

Ali Garced:
Yes. Thank you both so much for having me. I am actually active duty military, just for the next couple of months. That’s how I started out, was getting the VA loan, because that’s a no brainer. I purchased my first property in 2016, and I’ve purchased three more since then. And I have been surrounded by real estate with my family. My dad is in real estate as well, so he was always a good, go-to, a great mentor, somebody to bounce questions off of and somebody to literally see that, someone who was financially free, give a great example.

Tony Robinson:
You say that your dad was in real estate. Was he an investor? Was he an agent? Was he a contractor? There’s a lot of different ways to be involved. What kind of business does he have and how did that influence you as wanting to become a real estate investor?

Ali Garced:
Yeah, investor. I think he used to be a mortgage broker for a couple of years too, but mainly, it was investor, owning commercial properties. So I’m from White Plains, New York, that’s where I was born and raised. Went to school in Elon University, North Carolina, no one’s ever heard of it, no relation to Elon Musk. And since, joined in the military, I’ve bounced around. But yeah, definitely a landlord, he owns a laundromat, he owns residential as well, but on the commercial side, and a bodega.

Tony Robinson:
Yeah. So if I can ask one follow up question, Ali, I think people that are listening, they might say, “Oh, man. I can’t follow in Ali’s footsteps because my dad isn’t this successful real estate investor. But does your dad just kind of hand you the keys to his empire and you’re just kind of taking over? Are you building something on your own? Give us the background of what that kind of relationship looks like?

Ali Garced:
Yeah, yeah. And I absolutely can see how hearing a story about someone whose parents are already financially free from real estate is way too much of a jump. And of course, they got everything handed to them. I know that I’m grateful for what they’ve given me. I was able to graduate college debt-free, half from their help, the other half, I joined the military. College was way too expensive, so I was like, “You know what? The Air Force can pay for it.” So therefore, I gave back a couple of years.
No, I’ve never been given the set of keys. I wouldn’t even know what to do with it. He was just always someone to push me as far as making sure I just get into real estate. But he’s never been … I have a sister as well, has no desire to purchase real estate, that is not her thing, and he doesn’t push her. So it’s always good to have somebody ,and it doesn’t have to be your parents, but just have somebody that is where you want to be and ask questions. Someone that you’re comfortable, have a good just mentor relationship with. But no, I wasn’t given the keys to anything.

Ashley Kehr:
I think something important to point out is that you took advantage of an opportunity that you had. There’s a lot of people that have different opportunities presented to them, and they don’t take advantage. So you had your dad as a resource, that is a huge opportunity for you and you took advantage of that. And yes, you weren’t handed the keys to the kingdom, but even if you were, that’s still not as simple as just like, “oh, I got to take over all of this real estate.” And I think that’s a huge misconception people have. It’s like, “Oh, this was given to them. They got a huge inheritance, or they got these properties.”
There still is learning the process. There still is work that has to be done after you take over these properties, after you actually make the plan and you take that action to take over properties, or use an inheritance to purchase properties. I wish that I had somebody in my family to help me with a real estate, or had a huge inheritance. I think sometimes people think that other people had it easy because they had an inheritance, or they had this huge advantage, but it doesn’t really matter how you got started. It’s once you got started, where you take it, what you do with it, I think what really matters. So Ali, once you start talking with your dad, you got started in real estate, what kind of happens next?

Ali Garced:
Yeah, absolutely. And just to add to yours, there was no small loan of a million dollars. It’s same thing.

Ashley Kehr:
Yeah.

Ali Garced:
You really have to want it.

Ashley Kehr:
Yeah.

Tony Robinson:
Yeah.

Ali Garced:
So it doesn’t matter whether you have a family member or a close friend that is in it. If you really want it, you will find a way to make it work, period, dot.

Ashley Kehr:
Yeah, I agree.

Tony Robinson:
Let me add one more thing. I remembered this stat, and I had to look it up while you guys were talking, but it says that 70% of wealthy families lose their wealth by the next generation, and 90% lose it within the generation after that. So even for people that are coming from families that have done well financially, most of the kids mess it up, is what the statistic is saying. So the fact that you’ve been able to kind of come in and build your own thing, I think means that you’re doing the right thing. Right? You’re building it out the right way. So just kudos to you.
And I’m not pointing that out, Ali, to give you a hard time. But I know for a lot of our listeners, when they hear stories or certain tidbits from guests, they kind of start to tune out, because they’re like, “Oh, that’s not my background,” or, “That’s not where I’m coming from.” So I just wanted to make sure they understand the work that you’ve put into this to make it your own thing.

Ali Garced:
Yeah, absolutely. And that statistic scares me so much, that within three generations, all the money can be lost, and usually is lost. That shit scares me. And I think that’s always a good reason to think in the back of your head, and if you have kids, I don’t have kids, just keep yourself humble. Never live beyond your means, because I had no idea where we were at. I once time asked my parents if we were poor. I had no idea. So it definitely was not that kid to be handed down everything, and I will not do that with my own kids in the future.

Tony Robinson:
So talk to us about how you got started, that first deal in 2016.

Ali Garced:
So I had been in the military at that point for four years, I joined in 2012. I was at my second duty station, Peterson Air Force base, Colorado Springs, and I knew that I had the VA loan, but I really didn’t know much about it. As far as real estate investments go, it was not even really a thought in my head. But I did have my dad saying, “Hey, you should purchase property,” and that was it. And I was like, “You know what? Okay, fine. I’ll purchase a property.” Because I was living with a bunch of friends, in one house, super cheap rent. All of us were … some kid was living in the closet. It was just very, very cheap living, but all of my friends were anyway moving out. So I decided to, “You know what, I’m going to go ahead and purchase a property.”
So I found an agent, all my purchases have been on the MLS so far. I used the VA loan, put 0% down, it’s amazing. I think I brought a total of $3,500 to close, for the closing costs. I think that included the termite inspection. Then I got a property. I purchased it for 158. It’s a condo, two bed, one bath, in the middle of Colorado Springs, pretty close to base. And I thought nothing of it, right? I actually never ended up even moving into it, because I got deployment orders right after, which super still qualifies for the VA loan, because I intended to live in it, but military, so I had to up and move to Afghanistan.
So then I rented it out, I got a property manager, rented it out. While I was in Afghanistan, I was making triple the mortgage payments, because I really didn’t know what else to do with all this money that I had. And since then, when I came back from Afghanistan, I wasn’t able to make those triple payments anymore. I did a lot more research into what is real estate investing, and I was like, “Oh my gosh, there’s this thing called the 1% rule.” And I was like, “You know what? I am not making 1%.” And really, I thought back, and I thought that this was a good purchase, I rented it out. But after I really started running through the numbers, I was like, “Wait, I am evening out. This is no cashflow.” And I’m looking at my left side and my right side, and I’m seeing all these people, especially newer investors making cashflow, $100 per door, per month.
And I was like, “I’m not doing that.” What ever cashflow I would get, I would make … this was my number. I would make cashflow $88 a month. And I was like, “Okay. Well, at least I’m positive.” But every two years, just this huge snowstorm blew out the windows, without fail, blow out the windows, and there goes all the cashflow. And I was like, “I don’t think this is worth it.” I was like, “I don’t know if I like real estate.”
So I had that sort of negative idea in my mind, that if I don’t make cashflow on a property, I’m not doing well. But what do you know, December, 2021? My property has appreciated in value, double. I purchased it for 158, it’s worth a little bit over 300. That blows the cashflow out of the water that I would’ve made, had I made a measly $100 per month. It’s just night and day. So I think I focused too much in the beginning on cashflow, cashflow, cashflow, that 1%, $100 per door per month. But really, if you buy and hold, you will win in real estate.

Ashley Kehr:
Especially too, since you only had $3,500 into the property too, into the deal. That’s a huge factor, because somebody can tell you, “Oh, yeah. My cashflow is $1,000 per month on this property,” but maybe they put 20% down, 30% down too. So when you hear people talk about cashflow, you really need to know more information to see how their cashflow compares to your cashflow. And so when you’re not putting hardly any money into a deal, making $88 and having that much equity, that really is a huge win. So congratulations, Ali. Can you explain to everyone what a VA loan is? Who is eligible, and just kind of the basics of it?

Ali Garced:
Yeah, absolutely. VA loan, those that are eligible are active duty members. As long as you’ve served more than 60 or 90 days, family members, widows, as long as they have not remarried. And so anybody, essentially, with a military connection. And the highlights are, honestly the best part of a VA loan is putting 0% down payment. Of course, you could put some if you want to, but why? And then essentially, all you have to do is pay for closing costs, and you purchase a deal with 0% down.
It’s a no brainer. You can use it multiple times and have multiple out at one time. I have two VA loans out now, and I still have some remaining if I wanted to buy another one. My wife has two out right now, and we’re actually in the process of moving into the second one that she just purchased. So between the two of us, we have four VA loans and still some remaining on my side. So it’s a super, super helpful way for the military to get started in real estate.

Ashley Kehr:
Ali, one question from me, because maybe this is a misconception that I had about VA loans, but I was always under the assumption that you could only have one open VA loan at a time. But it sounds like you’re saying that you can have more than one at any given time period. So can you just clarify that for us? Have you heard that misconception? Is it wrong, or is there some kind of back door thing you were able to make that work?

Ali Garced:
Yes, it is the number one misconception is that you can only have one VA loan out at a time, you have to sell the other one before you purchase a new one. No, completely wrong. I think you can have three out at a time. There’s a cap, and you can just look up, Google your county as far as how much the cap is, but you can have all those out at one time. That’s-

Tony Robinson:
Cap in terms of loan balance.

Ali Garced:
Yes.

Tony Robinson:
Gotcha. Now, are they still looking at your debt to income ratio to approve you for all of those loans? Or is the DTI not as important for the VA loan?

Ali Garced:
Yeah, so actually, they just made an update to the VA loan in January, I think of this year, 2021, where the only thing holding you back is your own DTI and credit score, which super helps those people in high cost of living areas, Hawaii, San Diego, to help purchase a home. Otherwise, they might not have otherwise qualified.

Tony Robinson:
Wow, that is news to me. Ashley, did you know that?

Ashley Kehr:
Yeah, actually my business partner, [ Darrell 00:00:16:31], he is retired from the military and he just got approved for a VA loan. And so we’ve been doing tons of research on it. But yeah, we found out too that you could have two of them, and in our county, it’s up to $500,000 you could get. So he would have to live in one for a year, and then he could buy whatever remaining balance he had … was to get the other one to buy another. And then if he wanted to go and use it again, he’d have to refinance out of one of those other ones. But yeah, I’ve been learning a lot about VA loans just through him doing his, and it is such an interesting tool and a huge benefit.

Ali Garced:
Absolutely, it is. And for military, it’s a no brainer.

Tony Robinson:
I want to go back to one point you made though, Ali, about the cashflow on that first deal. You said you were making 88 bucks a month. I like that you brought up the equity piece, because I think that is another big part of real estate investing that doesn’t always get enough love, is the equity build up. But it sounds like this first deal wasn’t a home run for you, but it does sound like it gave you the kind of real estate bug.
So I guess my question is seeing that you were only making 88 bucks per month, was it the equity that got you excited about continuing to build your portfolio? Was it something else? Because a lot of people listen, they hear $88 per month, and they’re like, “Man, real estate investing isn’t worth it.” So what was it about that first deal that even though it wasn’t an absolute home run that made you want to continue to push forward?

Ali Garced:
Actually, it wasn’t even that deal that forced me to keep going. It wasn’t really until last year, when I looked back at that first deal, and I was like, “Wait, that’s a good one that I got, just buying and holding.” I got into bigger pockets and analyzing numbers the right way in 2018, and that is kind of what rejuvenated my want to purchase a real estate investment for cashflow. So that’s when I was in a little bit of a cheaper area, where I am now in Tucson, Arizona. And I’m also an agent now, which super helps as far as the MLS goes. But looking at deals here made me more so want to purchase. And then, I’ve read so many books on just personal finance and real estate, that that’s what got me into the real estate bug.

Tony Robinson:
Yeah. Just one thing to add on to that, because what you’re saying is that your first deal wasn’t a home run, but it gave you the motivation, the inspiration to kind of keep pushing, to figure out more about real estate investing. And I think that’s what I really want the rookies to take away from this, is that you obviously, Ali, couldn’t retire on $88 per month in cashflow. You would have to be living a very simple life to be able to do that.
But the purpose of the first deal isn’t to make you financially free. No one’s gotten financial freedom from their very first deal. Like me, my first deal was okay, my second deal was terrible, I still have a house for sale in Louisiana. And let me actually talk about that really quickly, because I think it’s an instructive deal to talk about right now. That house has been vacant for the last 10 months. So we’ve covered the mortgage payment on that house for 10 months. That’s $1,400 we’ve been paying for 10 months, that’s $14,000 that we’ve literally lost on this house.
But would I go back and stop myself from doing that deal? Absolutely not. And the reason I wouldn’t is because that one deal, it was my second out-of-state [inaudible 00:19:53], so it gave me more confidence on managing rehabs from out of state. It was my first deal with my partner, who we’ve now done, I don’t know, however many short-term rental and other kind of deals together. So it gave me the foundation I needed. And had I not done that deal, I don’t believe I’d be where I’m at today, sitting in the seat that I’m in. So the purpose of those first couple of deals are to give you the confidence, they’re to give you the education, they’re your training ground. They’re the foundation laying, so you can go on and continue to build up to five, to 10, to 20, to 30 units.

Ashley Kehr:
This property is also still available for sale, if anyone would like to contact Tony to purchase it.

Ali Garced:
I was going to ask that, are you still trying to sell it?

Tony Robinson:
We’re still trying to sell it, still trying to sell it. There is a glimmer of hope though. We had someone that stopped by the house over the weekend. And my agent always sends me the notes, and this one said possibly interested. So who knows? We’ll see if they come back and actually buy.

Ali Garced:
Dang.

Ashley Kehr:
Tony, my four-year-old, he also told me possibly today when I asked him if he wanted to go to the doctors with me when I got my MRI, he told me that this morning before school. And then when he got home from school, he wanted to go with dad out and work in the shop. And I said, “But you told me you were going to go with me?” And he’s like, “I said possibly, so that means I get to pick what I want, and I don’t want to go with you.” So just a little FYI.

Tony Robinson:
[crosstalk 00:21:17]. Yeah, keep my expectations low is what you’re saying. Okay, fair enough. Fair enough.

Ashley Kehr:
Okay. So Ali, you’re doing all this research, you found bigger pockets. What has kind of happened since then, after that first condo?

Ali Garced:
So since then, I have not had a home run. Every property that I’ve purchased since then has been another base hit. And I was originally looking for a home run, of course, who isn’t looking for a home run? But really, I realized time in the market is better than timing it. I was like, “You know what? Maybe the real estate crash is going to happen soon,” blah, blah, blah, blah. But I was like, “You know what? Let me just buy. If the numbers work now, for as far as cashflows go, the numbers are going to work.”
So I had been purchasing, my second property was here in Tucson, the VA loan again. My third property was actually out of state, I’ve never seen it, in Oklahoma City, that was a turnkey. And then my fourth property was a duplex here in Tucson again. Ironically, I was out of state, just because of the military keeps sending me all different locations. And they have been consistent base hits, but you know what? I’m taking action. I spent, I think, way too long analyzing and analyzing and just running numbers, and thinking, “That’s not that good of a deal. I can get better. I can find better.” Yes, you can. But at what cost? As long as you purchase a base hit, and you keep doing that consistently, you will look up one day and realize how far you’ve gone. So I have gotten consistent base hits, and I’m pretty good with that.

Ashley Kehr:
That is such a great point, is that you don’t have to hit that home run deal. You can do those base hits and they are going to build you wealth and still make you different from where you were before you even started real estate investing. So these markets that you were in, were these places you were stationed, and that’s why you picked them, or what made you decide on these markets?

Ali Garced:
Pretty much, yes. So even though I purchased the one in Oklahoma City, I was stationed a couple hours north in Enid, Oklahoma, no one’s ever heard of it. But I was here and I’d gone to Oklahoma City so many times that I knew what it was about. I knew that not only was their military, there were a lot of other job opportunities there, so I liked the area. So yeah, it’s something that I’ve had at least some knowledge of and been near for a while.

Ashley Kehr:
So when you search these markets and you are there, are you using property management or are you self-managing them?

Ali Garced:
I am using property management for the most part. I do have one Airbnb, which is here in Tucson, the single family. I manage that myself. I have the systems in place in order to do that. And really, when I was looking at property management, I saw that I think they wanted 40% of the rent, and it just wasn’t going to work. So I was like, “You know what, I’ll make it work.” And I found a cleaner, I know a handyman, and I have the systems in place.

Tony Robinson:
I want to talk about that. Just because, it was the same thought process for me.

Ashley Kehr:
I just knew. As soon as she said, “I have one [inaudible 00:24:21] rental,” all I just saw Tony’s eyes gleam, and I already knew. Okay. Well, I’ll be back to the conversation in 20 minutes. Take it away, Tony.

Tony Robinson:
Well, I thank you for that
So you touched on a little bit, but maybe break down for the listeners, why you decided to use a property manager for the long-term rentals, but decided to self-manage on the short-term side.

Ali Garced:
Yeah. Well, first, just to clarify, I think you said the long-term rental is less work than short-term.

Tony Robinson:
Yes, yeah.

Ali Garced:
Okay. In my experience, it’s been the opposite. I think short-term rentals are less work than long-term. Maybe that’s only because of my experience how I’m spending so long managing my property managers for the long-term, and realizing that they don’t have the paperwork ready yet for the next tenant. It’s just like, “Come on. I can do a better job.” Meanwhile, me running my one Airbnb, of course, it’d be different if I had a couple, probably. The cleaner knows the password, she changes the code. She takes photos before and after. Those photos double as an inventory type deal. We don’t count every fork and knife, but okay, are majority of the plates still there? Good to go. So that’s just so much less work, I found, with short-term rentals than long-term rental.

Tony Robinson:
That’s an interesting approach. I think you might be one of the first investors I’ve met that’ve kind of had that sentiment. And it makes me wonder, maybe there’s some inefficiencies on your property manager’s side that’s making it such a time involvement from you. Ashley, let me get your input. Right? Because you kind of got two of these as well. Do you feel that you’re investing a lot of time into managing your property managers for your long-term rentals? Or are you at a point in your career where it’s just kind of checking in, and 30,000 foot view, touch and go and they’re handling most of everything for you?

Ashley Kehr:
I have to say that I agree with Ali on this one. Be it, I only have one short-term rental too, and I have one person that takes care of it. I don’t do anything with it. She handles the Airbnb app, she goes in and cleans it, she manages the booking, she does the communication. But like Ali said, we’re not on a large scale. You and I don’t have a ton of communication with people. And it’s just one small apartment that I’m Airbnbing.
But I do spend a lot of time overseeing my property managers, doing the asset management portion of it. And I know on my end, a part of it is that the property management company didn’t have any experience with large apartment complexes. And another investor that I do asset management for his properties are the first complexes they ever had. And so recently, they did a walkthrough of every apartment and did preventative maintenance checklist for each apartment, just saying, “These are things we think you should repair now that might be a problem down the road,” just to update, stay on top of things.
And so we got 65 maintenance request for all these things. We start going through, we’re being charged for a bunch of the same things in each apartment, like replacing faucets. Okay. Well, when you get to the point of ordering 40 faucets, there’s usually a bulk discount. So we had to go back to the property manager and say, “Hey, this is a lot here. Can you please go and revise your pricing and get it priced out from your vendors?” And just things like that. And like Ali said, the turnovers are a huge issue for us, and staying on top of those too, and getting them re-rented.

Tony Robinson:
Maybe it’s just me and my experience, because I’ve also never had a really big, long-term rental portfolio. But for example, yesterday we had a guest that checked in, called us for the checking code, even though they had it already. Called us on how to lock the door, even though there’s a video on how to do that. Called us on how to turn the heater on. We have a mini split, even though there’s a … so when you get those kind of guests, there’s definitely a lot of time that goes into the short-term. But it’s good to have both side of that [crosstalk 00:28:39]-

Ashley Kehr:
Maybe just do what I do, and you have one piece of paper with the bare minimum information, and I never get any phone calls. Maybe they just already know, I probably won’t know the answer anyways. So [crosstalk 00:28:53].

Tony Robinson:
Right. Just set the expectations really low for them too. So Ali, I want to talk a little bit about the funding side of things. So did you use a VA loan for all of these acquisitions? Because if I’m doing my math right, you’re at, what? Four or five units right now?

Ali Garced:
Five units, four properties.

Tony Robinson:
Okay. So across those four properties, were all of those with the VA loan, or did you kind of start using different means of financing?

Ali Garced:
Yeah, good question. Only two of them. My first two purchases were with the VA loan. Like I said, I still have some left over. If I wanted to, I would have to do essentially half and half with a conventional loan. My third property, the one that was out of state in Oklahoma, that was a conventional loan. I put 20% down. It was a single family. My most recent purchase, which was in January of this year, 2021, was also a conventional. I put 25% down, because it was a duplex. So I’ve saved up quite a significant amount of money, through the stock market, really. So I just sold that and purchased it, and threw it into real estate, and it’s been doing pretty well.

Tony Robinson:
Yeah, that’s awesome. I think that’s something that a lot of rookies tend to get it stuck on is like, “Okay. I can think about how to finance that first deal and fund that first deal,” but when they think about getting to four properties, their mind starts to spin a little bit. So I always like to dig into how our guests are kind of putting those things together.
And obviously, you got the benefit of your first couple of deals being very little money out of pocket because of that VA loan. So maybe if there’s one takeaway from all the rookies that are listening, it’s to go join the military, get a VA loan, then you can kind of scale more quickly.
So Ali, I think Ashley and I want to dig into a specific deal for the rookie deal review. Do you have a specific property in mind we can jump into?

Ali Garced:
I do. I have my numbers for any one of them, whether you want to do the short-term, my duplex, you tell me.

Tony Robinson:
Which one do you feel maybe has been the most challenging for you?

Ali Garced:
The duplex.

Tony Robinson:
All right, let’s talk about the duplex then. So I’m just going to hit you with some quick kind of rapid fire questions just to set the table for the listeners, then we’ll go back and we’ll kind of get into the nitty-gritty there. So what market is this property in?

Ali Garced:
Here in Tucson, Arizona. And it was before I became licensed agent, so I used an agent. And I had been searching for over a year.

Tony Robinson:
Oh, okay. Gotcha. Okay. And we know that the property type is a duplex. What did you purchase this property for? What was the purchase amount?

Ali Garced:
179, and the appraisal came back at 180, and I was ecstatic. I was like, “Oh, man. My first one that I’m purchasing under appraisal price, $5,000.”

Tony Robinson:
And then it’s a duplex. So what do you have on both sides? Two, one? One, one?

Ali Garced:
Two, one. Yep, about 800 square feet each side.

Tony Robinson:
And you said it took you a year to find this, but was it on the MLS?

Ali Garced:
It was on the MLS, yes. All of my purchases have been on the MLS.

Tony Robinson:
Gotcha. Okay. And then did you put any rehab funds into this property, or was it turnkey?

Ali Garced:
It was turnkey. It didn’t require anything right away, but I have since completely remodeled one side. The tenant knew that she was leaving, and so I took that as an opportunity to increase the value.

Tony Robinson:
Okay. And then last question is, how long ago did you purchase this property?

Ali Garced:
January, 2021, so almost a year ago.

Tony Robinson:
Coming up on a year now. Okay, awesome. So let’s kind of dive and get into the nitty-gritty. So we’ve got a duplex you bought for 179, two, one on each side, purchased back in 2021. So first, let’s talk about how you found this deal. You said that it took you a year. I guess, elaborate on that for me. Does that mean that you were searching throughout the MLS for an entire year, or you had this property under contract for a very extended period of time, and there was issues trying to get it closed? Just break down what you mean when you say that it took you a year to close this deal?

Ali Garced:
Yeah. So the former, I had been looking on the MLS for 1% rule and how much cashflow can I get? Because I wanted to get a multifamily next, two, three, four. And I realized in Tucson, a lot of times, there are multifamily properties on the market that are not taxed as such. It is taxed as a single family. So I got into that, I found that quite a bit, where I was under contract, and I realized, “This fourplex that you’re selling is really a duplex. You just illegally added some walls, threw in another bathroom or another toilet and are selling it at fourplex numbers.” But really, it shouldn’t be that way. It’s a duplex number. So I had to back out of a couple of deals because of that. So it took me a while-

Tony Robinson:
Ali, sorry. Really quickly-

Ali Garced:
Yeah.

Tony Robinson:
… because I think that’s an important point. Can we drill down what the downside is of it being a four unit in reality, but a two unit on paper? Why is that something to walk away from?

Ashley Kehr:
And how you found that out too, where you got that information?

Ali Garced:
Yeah, I absolutely. So like I said, I was looking for multifamily, and this first one specifically that I remember, I was under contract already. And when I was running through the numbers and looking through the property, I saw there was just additions here and there, like a wall here that kind of just looked awkward, and there was a super, super small studio. And I was like, “Is this really a …?” This one was a triplex. So I went on the Arizona Pima .gov website, and I looked at that address, and it says what it’s taxed at. And this one was actually taxed as a duplex, not a triplex.
So I looked into it further, and I realized should somebody in that unit find out that there are no permits and that property is actually not a triplex, in the research that I did, I found out that they could get all of their rent money back that they paid you. That is significant enough for me to say, “You know what? Next.” But I am also very risk averse, and that’s something that I’m working on myself. A lot of investors here in Tucson don’t care, because it is so, so common. People will purchase properties that are illegal.
People don’t want to go through the permits, and I’m sure that’s not here in Tucson alone. Permits take a very, very long time and they’re expensive, so sellers will just want to sell their property after putting up a wall and another toilet. So after that, I realized instead of getting under contract and wasting my agent’s time, I will look on that website first. I’m sure for any county that you’re in, go on the county website, look up that address or look up the parcel ID, and see what it is being taxed at. And if it’s being sold differently, I would probably it just keep on moving.

Tony Robinson:
I wasn’t aware of that. I didn’t know. And maybe that’s an Arizona thing, but I didn’t know that as a tenant, you could go after the landlord for being in a non-permitted unit. Is it like that in New York, Ashley, are you aware?

Ashley Kehr:
I don’t know about the rent portion of it. I know that there are a lot of … if you have more than so many units in some of the counties, they will come in and do an inspection every year for your certificate of occupancy. I think it’s maybe every two years in some of the counties. And if it’s not a permitting unit, you’ll get fined. And I remember looking at this triplex, I think it was in Rochester, New York, and the one unit wasn’t a permitted unit. And the guy that owned, it said, “Oh. Well, don’t worry. The tenant that lives here, he just pretends he lives with the other tenant while the inspector comes.”

Tony Robinson:
So he’s like, “Don’t worry, I got it figured out. I got it all figured out. Don’t worry about it.”

Ashley Kehr:
Yeah, yeah. So I don’t recommend doing that.

Ali Garced:
Yeah, and that’s a real thing. I actually ended up talking to the seller, and the seller really almost convinced me that this was okay. That because it’s so common, “Everyone does it. Purchase my property,” but don’t fall for that.

Tony Robinson:
Thank you for sharing that, Ali. I think, Ash and I, both of our antennas went up when you said that, because we know it’s an important thing for rookies to understand. It’s like, “Hey, here’s what you should be looking for when you’re kind of scoping out these multifamily properties.” So you passed on this first one. So tell us how you ended up finding the one that you actually ended up purchasing.

Ali Garced:
Yeah. This one, I had taken a look at it on the MLS, ran the initial numbers, and kind of just decided to keep on moving. But I think I was already starting to get into the mentality of, “This one might not work, this one might not work.” I was starting to get a little bit down, but I was on a military trip away from the state, and my friend actually hit me up with this property, was like, “Hey, have you taken a look at this? You might want to try run some numbers.” And I thought he sent me this property because he was looking to purchase it, so I ran numbers for him, thoroughly, more than I did originally. And I was like, “You know what, Kyle? This is a pretty good deal. I say, go for it.”
Because when I clicked on that MLS, it came up as purple, as something that you’ve already clicked on before. I was like, “Oh, yeah, I ran this number originally, but let me do a deep dive.” And I was like, “This is actually a pretty good deal. Go for it.” And he was like, “No, I sent this for you.” And I was like, “Well, I might go for it then.” The he biggest thing for me, which excited me about this property was that the rents were so low. The rents had not been increased for 10 years. And each side had lived there for 10 plus years. So they were being rented out at 50% of what they should have been. There was only one rent increase, and that was right before the seller decided to sell, but other than that, they were paying 400 bucks. And market rent at the time was 850, min, for that type of property.

Ashley Kehr:
Once you purchased the property, how did you go about raising rent, or did you ask them to leave? What kind of happened in that scenario when you have somebody that’s so below market rent? What was kind of your game plan there?

Ali Garced:
Yeah, yeah. So the seller had actually just increased rent for the first time in his whole owner experience of that property. So I was not the new landlord to come in and say, “Oh, you’ve lived at this price for 10 years, I’m going to raise it to market rent.” There was that softening period, I guess, that he started out with. So he increased it to 75% of what the rent should be. And when I came in, in Arizona, you have to finish off their lease. So they had signed for another year, right? So you have to abide by that at their price.
And then I told them beforehand, I had a property manager at the time for both sides, and now just one. I told to increase the rent, and I told them to actually send them costs, send them what they would be paying if they were to move out. But one side liked being there, liked living there. He knew that he was going to stay. And I told him, I was like, “Hey, [ Travis 00:00:39:32]. This is market rent, but this is what I’m charging you, and it’s $150 less.” And then I did that to the right side as well, but the right side already knew that she would plan on moving, because of family stuff. So I knew that that side, I was going to remodel and increase it to get the most rent.

Ashley Kehr:
That’s great advice right there. And that’s something I have done too, where you send the letter with the rent increase, but also show that comparable rents, comparable properties, the same amount of bedrooms, bathrooms, maybe same kind of style or features of the property, that you’re actually charging them below market rent, or that it is market rent. I’ve never had anybody complain about it, when you show them that if they go and look at other properties, they’re going to be paying more, plus they’re going to have to move too, which can be costly and a huge inconvenience.
So that’s a great advice, Ali, to put that in there. Another thing you can do with large rent increases like that is do it over time. So steadily increase the rent, sending out a letter saying, “Okay, for the first three months, it’s going to increase by $25. After the next three to six months, it’s going to go up to $50. And then after that, it’s going to be up to $100,” or whatever it’s going to increase by, and do a gradual increase too for a tenant. And I’ve had good success with that too.

Tony Robinson:
Just one idea on that, because I know what you hear a lot is that landlords get kind of villainized when they raise rents on people. But it’s like, if you look at any other commodity or any other thing that people buy to live their life, you don’t see that same kind of backlash against the people that are the owners in that situation. Say that you’re a dairy farmer, and say that for whatever reason, you kept your prices on milk really low for a long time. And you look up and you’re like, “Holy crap. I’m charging 50% less than all the other farmers out here selling milk. Let me raise my prices to meet everyone else.” No one’s going to come at you and say, “You’re a terrible dairy salesman because you raised your prices.”
But for whatever reason when it comes to rent, as owners, we get villainized. But I think that approach of saying, “Hey, here’s what you’re going to pay if you go elsewhere, which is even more than what I’m raising the rents to,” that’s the way to kind of soften that blow and make both of you guys feel better about the situation. But I just always thought it’s been a really weird label that gets placed on landlords when we make that price adjustments on properties.

Ali Garced:
Right. I could have increased it to 100% of what the rent honestly should be, but I didn’t, because he has been there for so long, and he is a good tenant. I looked at their financials and he’s paid on time every single month, so I wanted to keep him. I want to keep him as long as I can, although I do plan on selling the property. But he’s a good tenant, so I want to reward him for that, I guess. And so it’s only 80%.

Ashley Kehr:
So you just mentioned that you plan on selling the property. What kind of is your exit strategy then for this property?

Ali Garced:
Yeah, so I purchased it conventional loan. I would like to do a 1031 exchange and start moving up. I was only able to rehab one side, and I put about 17 into it, and it’s probably increased 50 since I bought it, with … maybe 55, 60. So I plan on doing a 1031 exchange, and into a larger multifamily. I do plan on going commercial on my next one.

Tony Robinson:
Gotcha. So I guess before we move on from the rookie deal review, I just want to kind of tie this one up for the listeners. So we know what you bought it for. So what are you actually charging in rent on these units, and what kind of cashflow are you seeing per side?

Ali Garced:
Yeah, so PITI is 950. And one side, after the rehab, is rented out for $1,000. The other side, the guy who’s been there for a while is $700. And so 1,700 income, and so it’s pretty good cashflow. But now that I’ve done my rehab, it was my first time doing a rehab too, with a contractor that came recommended from a lender that I work with here.
And I probably did everything wrong of what you should not do. It was a handshake deal, barely looked up his license. But he came recommended from a lender, and this lender was like, “Hey, you send me a lot of business. I know that if this contractor messes up, you won’t be sending me any more business.” So I trust him. But anyway, yeah, so it cashflows pretty well, and I do plan on … I don’t know where I’m going to purchase the next property, but I know it’s going to be commercial.

Ashley Kehr:
Well, awesome. Thank you so much for sharing that deal for us. Real quick, why did you have that kind of pivot from doing residential to commercial?

Ali Garced:
Economies of scale. Cashflow, especially now, so the last 10 years, almost 10 years, I’ve been in the military, comfortable W-2, making really good money. But now I’m leaving a secure W-2, becoming a full-time real estate agent and investor, and I’m more so focused on the cashflow. So it was great that my first purchase was more of an appreciation play, but I really need to focus more on cashflow in order to make up some of the income that I will not be making with the military. So economies of scale, larger multifamily will be able to do that for me.

Ashley Kehr:
Well, that’s very exciting, and I’m excited to see where you take this and continue on your journey.

Ali Garced:
Thank you.

Ashley Kehr:
So I’m going to take us to the rookie request line. You guys can call in at any time, 1-888-5-ROOKIE. Leave us a voicemail, and we may play your question on the show. Okay. Are you ready, Ali, for today’s question?

Ali Garced:
I’m ready.

Tom Zoda:
Hi, my name is [Tom Zoda 00:45:24]. I am in the military, working at Fort Campbell. I’m currently looking for a property in the Clarksville area for investment property. I’m currently just living in Nashville, and I commute an hour, and I’m starting to realize that the road to financial independence would require me to start living closer to where I work, at Fort Campbell. So my question to the guest would be what advice would you have for someone who’s currently leasing an apartment, and looking to buy property soon, but unable to break a lease on the apartment, and still get property? Should I maybe wait until my lease is over? Just looking for any ideas or advice. Thank you.

Ali Garced:
So if this member in the military does a lot of travel or the military sends somebody anywhere for a period, I think of longer than 60 days, you are able to break a lease. So if you wanted to game the system, if there is a trip coming up to volunteer for … it might be 90 days, I’m not sure, I’d have to take a look at that deeper, but that could be a way to legally break the lease. The CRA allows that.
Otherwise, I would say, keep saving money while you’re in this lease. And in the meantime, start looking at multifamily to purchase with your VA loan. I can help you find a good agent out there in that area, but it obviously it has to be a place where you would feel comfortable living in. A lot of times multifamily properties aren’t in the best locations. So you have time on your hands, that benefits you, start getting a drip campaign and start looking at what multifamilies closer to base are there. And they usually are a lot close to base.
And then start, get your family involved. If you’re married, definitely get your spouse on board, and run the numbers. And then once you get that, you should be able to rent out the other units, live in one side, hopefully cashflow it. And that helps you snowball the amount of money that you’re making. Then you can move out after a year.

Ashley Kehr:
That’s great advice, Ali. The only thing that I would add to that is my brother, actually, during COVID, he wanted to move home, because he started working remotely from North Carolina. And he actually talked to his property manager, and said, “I would like to move out in a couple months. Is there anything I can do to get out of my lease?” And they said, “We can actually list the apartment available now, and if we get somebody to move in, you won’t have to pay for the remainder of your lease.” So your property manager might have options for you.
I know that for the property management company I use, if somebody breaks a lease and wants to move out early, if they find a tenant to put in place, they’ll not charge them additional rent, but they will hold their security deposit for the lease termination too. So depending on what your security deposit is, you could have to maybe forfeit that. But does that make sense for you to be able to get into a house hack earlier.

Ali Garced:
Yeah, that’s a really good point. A lot of people see leases and they see the black and white, and they think that is it, that’s final. Not realizing that on the other side of the lease is a human being that rationalizes and has a heart. So everything in life is negotiable. So yeah, really good point.

Ashley Kehr:
And well, especially in New York, I just feel like it’s so easy to get out of a lease too in New York state. I mean, I can think of several situations where people just left in the middle of the night, and you don’t know where they go, you don’t know how to track them down to do anything. So I’m not suggesting that anybody do that to get out of a lease. I’m just saying, there are there … what are they called? The tenants-

Tony Robinson:
She’s just saying, she knows a guy. If you need someone, [crosstalk 00:49:10]-

Ashley Kehr:
Career tenants, career tenants. Yeah, career tenants. That I think that there is a way that you could get out of a lease by, like Ali said, talking to the landlord, and them rationalizing with you and kind of figuring out a game plan.

Tony Robinson:
Awesome. Well, I guess let’s take it to our rookie rockstar. Yeah, let’s dive into it. So today’s rookie rockstar comes from the Real Estate Rookie Facebook group. We are at just over 40,000 active members there, so if you’re looking for a place on the internet, obviously outside of the Bigger Pockets forums, to interact and engage with other rookie investors, the Real Estate Rookie Facebook group is the place to go.
But today’s rookie rockstar is [ Matt Nicastro 00:49:49]. And Matt said that after five months of rehabbing and getting the place exactly the way we wanted, my wife and I have finally gotten our second short-term rental live on Airbnb. This home is located just outside of Disney, and the house has been live for two weeks and already has $7,000 in bookings, and this is why I love real estate.
So Matt, congratulations to you and your wife. And for the rookies that are listening, this episode goes live after we have launched already, but the short-term rental bootcamp is live and in action. If you’re interested in any of the Bigger Pocket Bootcamps, just head over to biggerpockets.com/bootcamp, and you guys join the waiting list for the next sessions that we have.

Ashley Kehr:
Tony, I was just very inspired by this rookie rockstar, that I think what we need to start doing is we need to see that these short-term rentals that people are putting together are actually really as awesome as they are describing. So I think we need to get invited out and check these short-term rentals out.

Tony Robinson:
I think that is a very fair trade, Ashley. Our listeners invite us out to their cool Airbnbs all across the United States, we give them our honest feedback and opinion.

Ashley Kehr:
Yeah.

Tony Robinson:
And it’s a win-win for everybody.

Ashley Kehr:
Bonus points if it has a pool and we get to have a pool party.

Tony Robinson:
Astra Palooza, part two.

Ashley Kehr:
Yeah. Well, Ali, thank you so much for joining us today. And let us know when you want us to come out to your short-term rental. We will be there. But can you tell everybody where they can reach out to you, and find out some more information about you?

Ali Garced:
Yeah, absolutely. Well, first, my short-term rental does have a pool. It’s a community pool though.

Ashley Kehr:
I’ll take it.

Ali Garced:
Yeah. So the best way to get ahold of me is probably through Instagram, Ali_the_Agent, A-L-I, the agent, with underscores in between. Or if you wanted to brush up on your spelling, it’s Garced Realty. My last name is Garced, G-A-R-C-E-D, Realty. There is no I in realty. It’s a pet peeve, reality, and people add I’s all the time. GarcedRealty.com, or Instagram would probably be the easiest. I’m happy to answer any questions that newbies have. I’ve been there. It can feel like a lonely world if you’re not connected, so number one thing is to stay connected with others.

Ashley Kehr:
Well, Ali, thank you so much. And also, thank you for your service. And great information today, you have provided such value to Tony and I, and also the listeners. I’m Ashley at WealthFromRentals, and he’s Tony, at Tony J. Robinson on Instagram. But before you guys go, let’s check out what’s new for you rookies, at BiggerPockets.com.