Most people think that flipping homes is a way to make a quick buck. Well, that is true. Flipping homes can make you some quick money. BUT, did you think that it can help you buy a rental property at the same time?
Flipping homes sure can help you make the cash to buy 1 or more rental properties.
Today we are going to be talking about investing in other states, and I have Ryan Inman who invests in Las Vegas.
He has bought and flipped properties and used that to make money to buy more properties. He is a financial planner who works with doctors to help them manage their money.
He also bought a property to flip it, make money, and then bought more rental properties.
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Tell us a little about your first property, how you got started, what the deal was like, where you bought it, how much you bought it for, the return on investment, etc.
When he bought, he went against the grain of everyone. In 2012, when his wife was finishing her residency, they were living in Southern California and she was going to be doing a three-year fellowship in San Diego. Ryan knew the market was still depressed and it was just starting to make its way back up.
Ryan could see there was an up trend in the real estate market and action was happening. They decided to buy a house in Carlsbad, California and at the time, and it was a lot of money to them.
They bought the house for $480,000 with a physician mortgage, which means if you put less than 20 percent down, you don’t need to pay private mortgage insurance (PMI). The lender pays the PMI.
They put five percent down. They never intended to sell it.
It was a new construction, 2,000 square feet, four bedroom, three bath home and it was about two and a half miles from the beach. The builder was in the first phase of construction and they had forced appreciation, because the prices of homes go up as the other phases are complete. By the time the development finished, the price was at $510,000.
They had to double pay the rent and mortgage, before they moved. His family and wife fought him, because it was risky.
Fourteen months later, his wife was pregnant with his son and they lived 35 to 40 minutes away from work. They were traveling a ton. They put the house on the market and sold it for $650,000.
They were living there for about a year and a half by the time they listed it. The real estate market got hot, and they jumped on it.
It was a risk when they bought the house, but he knew they could always rent it, because his mortgage was a 30-year, fixed loan at 3.5 percent interest, which is just over $2,500 a month, which is a good deal. The current rent in Carlsbad is $4,000 a month.
His wife had about $175,000 in student loan debt at the time, because she went to an in-state college, lived at home, and she did a lot of things right. Ryan’s average client is $300,000 in debt.
Las Vegas was crushed with the downturn in the market. A good starter home in a good area, with a decent school, with three bedrooms, two baths, and 1,600 square feet was selling for $350,000. A year later when the downturn happened, they were selling for about $120,000.
Instead of paying off the student loan, they decided to buy three houses in Vegas. It took a little bit of time, because he was picky. He bought them in three different areas of town.
He wanted to help out his family, so his cousin lives in one house and he has never raised his rent. It should be $1,500 a month, but he charges him $1,120.
They owned the other two and each house cash flowed a couple of hundred dollars a month at the time. Ryan decided to sell them, because he thought the town had popped too much. Had he held them, he may have gained an extra $10,000 or $15,000 and some cash flow, but he was still able to get about $95,000 out of each property, which, in turn, paid off all of his wife’s student debt and he still was able to keep one house.
His cousin currently takes care of the property and does a lot of work on it.
Ryan saw an opportunity and took advantage of it. His tolerance for risk is much higher than other people.
Ryan grew up in a family of entrepreneurs. He was the first one on both sides of his family to graduate college. He grew up with the mentality that he had to earn his own way and make his own thing.
There are so many great resources and tools online that weren’t available years ago. Everyone has the opportunity to learn about real estate and build a business.
When Ryan’s wife was in training, collectively they made about $100,000 as a household. His wife had $175,000 in student debt that was financed at 6.75 percent that they couldn’t refinance in the federal program. They could consolidate, but it didn’t allow them to lower their interest rate.
At the time, they were in the public service loan forgiveness program, which they ended up getting out of, because it wasn’t the track they were going. They didn’t have consumer debt or expensive cars.
Part of it was good financial planning and the other part was that Ryan was aggressive. He spent hundreds of hours studying the market and analyzing hundreds of homes, and he learned what happened during different timeframes. He looked at everything, so he knew the house in Carlsbad was a good deal.
Build the business first by educating yourself and doing the research, so you are able to jump on the deal when you see it.
Ryan has now bought and sold dozens of homes. Don’t ever think of your house as your forever home. He looks at it as if he has to rent it out: what does it really need.
With the first house, he and his wife came to a compromise, because there were things that were important to her, like a backsplash in the kitchen. He was willing to pay $1,500 for that, but not $20,000 extra for the upgraded flooring.
Tell us about any failures you’ve had that we can learn from.
Ryan didn’t effectively communicate with those that were around him, like his parents, brother, and wife, and it was a very tough thing for them to understand.
Ryan is a numbers guy and he did a lot of research. He fought uphill from every direction to get it done, and he wishes he had been a more effective communicator, because he wouldn’t have had so much self doubt.
Part of him wanted to prove them wrong, the other part questioned if it was a good decision. You just need to do it.
If you are passionate about it, have done the research on it, and you know what you are getting into, you need to take the first step. At some point you need to take action, otherwise you are just wasting your time.
Dustin has students right now buying properties in other states. There are a lot of properties in the Midwest that don’t see a lot of appreciation, but they cash flow well.
In California, they are praying for appreciation, because cash flow isn’t as good.
Las Vegas is kind of a hybrid, where if you buy too much house, it is like California where you are praying for appreciation. If you buy in a decent area of town, they still cash flow, but they are harder to find.
What should you have done better to get your wife on-board?
Make sure you know all of your numbers inside and out, backward and forward.
Don’t do what Ryan did and just show her a giant spreadsheet. It made sense to him, but he should have had a Cliff’s notes version.
Ryan’s wife is a physician and she is significantly smarter than him, but he did not effectively communicate.
When they were buying their house, she trusted Ryan, because he is a financial planner.
If he was doing this over again, he would (1) make sure he knew all of the numbers, (2) create a summarized version of what he was working on – logically break out what he did, and (3) ask what she thinks.
Now they can make an educated decision, instead of his wife hoping he knows what he is talking about.
The more you share about everything, the easier it is to bring another person onboard.
If you were to go back, what advice would you give your younger self to get started? What are some principles we can take away that you would teach yourself or your kids about real estate investing?
Ryan would drive home the point that you make money when you buy real estate, you don’t make it when you sell. That is just when you get the money for the hard work that you have done.
Even with his background, he thought you made money when you sold. It is only when you buy the right deals that you will make money in the long term.
In order to buy the right deals, you need to put in the time, effort, and research to know where those deals are.
If you are still at the point where you are learning terminology, that is fine. Don’t rush to buy the first deal. Understand what you are doing and what things mean.
Once you get comfortable and you can explain it to someone who doesn’t understand real estate, then you are ready.
If you are able to teach it yourself, you are ready.
There are still deals out there, they are just harder to find. It is easier to find them away from the coasts.
Ryan was a long-distance landlord. He didn’t even see the third house they bought. He had his mom look at it and she knew what to look for.
The more due diligence, time, and effort you put into the initial analysis, that is when you make the money.
If you did your job right and the market corrects, you are not forced to sell. The rents will be paid.
Are you currently investing now, or do you see yourself investing sometime in the future, like when the market corrects? What are your thoughts about investing now?
Ryan lives in San Diego, he knows the market, and he knows he will never buy a rental there. It could happen, but it is unlikely.
Ryan knows the Las Vegas market very well. Right now, in the middle of 2019, there is $12 billion in development happening along the strip and they are adding tens of thousands of jobs. The town has already grown to the outer rim of the mountains.
He likes investing in Las Vegas. Ryan’s mom, brother, and he have formed a partnership. He runs the rentals and they all put in some money to buy them. They haven’t bought anything in 2019, because they haven’t found anything that meets their criteria. They currently own five rentals together and he owns the one house that he rents to his cousin.
Ryan has years of experience now and he can leverage the experience of his family.
If you had to start over with $1,000 or $5,000, what would you do? What would be your process?
Ryan would pick a city in the U.S. that has jobs that are growing. He would take a map and try to understand every city that could be a target. He would spend the next three to five months understanding everything he could about those cities.
Eventually, you will narrow that down.
Ryan would then start looking at rentals and find out the good areas. He would do all of it behind the scenes so he could know everything there is to know.
If you don’t know what you are doing, invest that $1,000 in yourself, in your education. At some point you will need to save some money for a down payment.
If you want to own rentals, learn everything you can about the city and then jump in with your analysis.
There is not a right time to buy in Vegas right now. Ryan wants to make at least $250 a month, and he is willing to wait to find the right deal.
Everyone wants to buy in the summer. Ryan would look closer to Christmas time and stick to his criteria.
Before you get a deal done, find the good agents and property managers. Meet people for coffee and see how the town is doing. Just realize they are incentivized to sell, so their outlook may be more rosy.
Ask questions to 20 people about town growth, job growth, rental prices, trends, etc. Every answer is a good data point.
You can take that information and look online at the past five years of pricing data through Red Fin, Trulia, or Zillow. It would be nice if you had an agent to run comps, but you can do it yourself.
You need to put in the work.
You can also use Roofstock to find good deals.
Is there anything we should know that we missed on rental properties and how we can do it better?
Be more conservative with your numbers when you are looking at how you are going to put together a deal.
Don’t skimp on your numbers, like vacancy, and assume you will always have a renter. If your roof is 10 years old, make sure you are factoring that in the analysis in the beginning.
Ryan is a conservative underwriter, and that is why he hasn’t gotten into trouble with his deals.
There will be times when good properties come on the market, and you need to be ready for them. The way to be ready is by getting your knowledge now and learning to invest in rental properties.
Don’t wait to learn!
Get out there, start investing, and change your lives for the better!
A big thank you to Ryan Inman who is the founder of http://financialresidency.com