375: Retirement at 33 Through Creative Multifamily Financing

SHOW NOTES FOR EPISODE 375: RETIREMENT AT 33 THROUGH CREATIVE MULTIFAMILY FINANCING

Jason Harris may be young but he has been advising old dawgs on how to retire smart for the last 7 years.  However,  it wasn’t until he started investing in real estate that he saw the true solution to the perfect retirement.  Starting with almost no money and a strong commitment to succeed, Jason and his wife Carrie creatively grew and leveraged their real estate holdings to over $13 million (and counting) in just 9 years!

What You Will Learn

• How he leveraged a house-hacked fourplex into a real estate portfolio worth over $13 million in assets in less than 10 years
• How FHA loans can be the perfect tool to get started as a real estate investor
• How you can acquire properties creatively with little or no money down
• Unique strategies to totally eliminate personal household expenses
• How to reduce personal living expenses by over 60% through real estate investing
• The value of becoming a student of lenders, lender products and lending policies
• How strong persistence pays off with reluctant lenders
• Why old dawg newbie real estate investors have an advantage over younger newbie investors

About Our Guest

Jason Harris

Jason Harris and his wife Carrie are partners in life and partners in real estate. Together they have built a large portfolio of real estate investments, comprised of mostly small multifamily buildings. They have also been able to acquire most of them through seller financing.

Jason is 33 and Carrie is 31.  They have been married 9 years (come July) and live in Lindon, Utah (in the northern part of Utah near Provo and Orem).  Jason was a financial adviser and Carrie a real estate broker.  In 2010, Jason wanted to invest in real estate full time but chose to pursue a career in financial services instead and just invest in real estate on the side.  Even though his real estate company generated significantly more money than his day job, he still continued to work as a financial adviser because he enjoyed helping people achieve their financial goals. It wasn’t until very recently that he left his financial advising career to pursue real estate investing full time.

Jason and Carrie currently own 81 units and counting.  Their real estate portfolio is estimated at $13 million and generates $1.2 Mil in gross scheduled income.  All of their sales transactions have been low to no money down deals with good cash flow.  They love real estate and are grateful for how much it has impacted their lives and want to help others achieve the same.

More About Jason

• Jason grew up in a family that struggled financially
• His father worked loyally for a company for years but unfortunately there were layoffs during tech bubble crisis and housing crisis
• It made Jason not want to depend on a company to take care of him and his finances
• He read Rich Dad Poor Dad and the Total Money Makeover and they changed how he thought about making a living
• When he started working, he saved 75% of everything he earned

Real Estate in the Family

• When he met Carrie, her father said he made more in real estate on the side than he did as a State Farm insurance agent
• Carrie knew, early on, that real estate was what she wanted to do
• Her parents owned a duplex and wanted to sell it purchase a fourplex
• He took her parents to dinner to pitch them on buying the duplex.  It didn’t happen but they found out from an agent that they could buy a property on their own
• He found out about FHA financing up to 4 units
• They started looking for a fourplex that they could buy with very little money down
• The plan was to live rent-free (having the other tenants pay the mortgage) and save the amount they previously spent on rent to purchase other rental properties

Launching Their Real Estate Business

• When Jason was 24 and Carrie 22, in 2010, they bought their first fourplex
  • Creative financing
    • Barely qualified for a 4.5% down FHA loan
    • Got a first time homeowner credit for $8,000
    • Got tenant security deposits
    • Also received prorated rents for the months they took title, plus for another month of rent income
    • They had earned their entire down payment back within two months
  • Over time they increased rents based on local rent demand
  • And when they moved out of it 2-3 years later, they rented their unit out for additional cash flow
  • They bought initially for cash flow but the added bonus was the incredible appreciation they had experienced in subsequent years
• They were able to save $1,000 each month from what they were paying in rent and that money helped them to buy another investment property and that’s how they got started
• Bought their second property 3 1/2 years later
• Most of his properties were purchased in Utah County in Utah, some in Salt Lake
  • They were self-managing their properties in the beginning but he found his time better spent as a financial planner and finding new deals instead
  • They hired an outside firm
  • More recently, they have found it more profitable to form their own property management company to manage their rentals
• Jason became a financial adviser with Edward Jones in 2012 (the day of this interview was actually his last with Edward Jones, as he is now a full-time real estate investor)
  • The stable income helped in getting the financing they needed to acquire most of their properties
• Handed his old financial adviser practice over to his brother-in-law
• In 2014, Carrie got her real estate license
• Jason was Carrie’s number one, first and ONLY client
• Jason started buying as many rental properties as he could to build passive income
• Later, Carrie expanded her business to help out other clients (most are real estate investors)
• She got her broker’s license a little over a year ago
• Now, she has other agents working for them as well
• Jason has since leveraged equity in their first fourplex and other duplexes/fourplexes to acquire other properties (where they would always put down very little in the way of deposits) and recently, they leveraged more than a million dollars in equity accumulated in these properties in a 1031 exchange to acquire 60 to 80 units in Kansas City

Creative Financing and Reducing Personal Expenses

• They did not make much in their early years so they had to be very “scrappy” and manage every penny very carefully
• They would always seek low down payments
• Always looked for creative financing opportunities
• Major savings on two personal expense items
  • Owner-occupied their rental properties to reduce and/or eliminate their housing expenses
    • The National Bureau of Labor Statistics in 2017 said that the average American spends 32% of their income on housing
    • They never spent anything on housing because they always had tenants cover their rent
  • Taxes are the second biggest personal expense item (also around 30%)
    • Real estate helped give them big tax savings as well
  • This gave them 60% more income to use to acquire other properties
• They continued to live in small multifamily properties (4-5 times) until they acquired a personal home for themselves.  But even there personal house has a basement they rent out to offset housing costs
• As they acquired more properties, they had to get more creative as they maxed out the personal allowable number of mortgages (10 per individual).  Jason had 10 properties in his name and Carrie had 10 in her name.
  • They used to have individual LLCs for each property but found it too costly and cumbersome.
  • Now they use Series LLCs for certain properties where they can have all their taxes flow through just one Master LLC but still have limited liability per property.  For an underwriter or loan officer it is now easier for them to calculate his debt-to-income ratio and his true income then trying to decipher through several LLCs to calculate income and debts
  • They also use umbrella insurance policies to cover liabilities as well

Other Creative Deals

• Some off-market Deals
  • Fourplex
    • Negotiated good price ($355,000) and still had upside equity
    • Instead of getting a traditional loan requiring 15-25% down, they used a private hard money money lender that was willing to provide 100% short-term financing
      • Within one and a half months, they completed some value-add improvements:
        • Improved curb appeal (painting the exterior, removing debris and garbage from the yard, moving, landscaping)
        • Raised rents $200-250 per apartment or, roughly, $1,000 per month (Not a single tenant complained or moved out.  They appreciated the positive improvements)
    • Had the property appraised and found the “forced equity” efforts resulted in significantly in value increase ($475,000) and now they had the 25% down (from the equity) needed for a traditional loan
    • They re-financed the property, paid back the private money lender back and ended up only paying $3,000 down
    • Did some additional interior upgrades and improvements and sold it for $562,000 6 months later, making

Current Properties

• Currently Owe
  • 28 buildings (81 doors)
  • Most are duplexes and fourplexes
  • Have one 10-unit
• Soon Will Own
  • A commercial office building (23 units) – under contract, closing on shortly (it will be their second office building)
  • 3 fourplexes will be 1031 exchanged for 64-80 units (depending on how they configure)
• He doesn’t want to sell any of his properties but has had to to acquire certain strategic properties
• Acquired and grew their entire portfolio without any mentors or coaching programs
• They only partnered on one deal and have done without syndication up to this point

Biggest Mistake

• Because of the bull market cycle he started buying at a good time
• Most deals worked out well because of the good economy
• His Biggest Mistake: Limiting beliefs that made him believe that he had to save up 25% down for each new property
• He didn’t know about the various loan options available to him
• Bought his first property in 2010 and the second in 2014
• If he had known, he would have bought more properties sooner

Biggest Success

• He is very creative
• He now knows 50 different ways to buy a property
• He can analyze a deal and know the best strategy or approach for each given deal
• He learned these things because he started with very little money and he needed to make the deals work
• He has learned what lenders want to get financing
• He can negotiate a deal before even taking it to the lender, knowing what it needs to look like to get a “yes” from the underwriting to move forward with financing
• He took the time to learn all the different nuances of different loans
  • What his debt-to-income ratio needs to be
  • What the reserve requirements are
  • What the down payment percentages are
  • That the seller or lender could cover his closing costs
  • All the things you can do to set yourself up for success, knowing that the strategies if traditional financing doesn’t work – that there are still other options: with you or partnering with someone who has better credit than you or the capital needed
• Other valuable skills learned:
  • Knowing how to make the deal work with little of your own money
  • Once the property is purchased, knowing how to increase cash flow by reducing expenses and/or increasing income to generate it’s highest and best use
  • He asks lots and lots of questions
  • Persistence – He fought with loan officers to get a yes
• These things have all been a great advantage to him

Personal Gifts

• Logical and analyzing skills
• Being a financial adviser
• Loved his old clients
• Really wants to help people and create a win-win situation

Advice for Old Dawgs Interested in Real Estate Investing

• Most Americans are not prepared for retirement
• Many see Social Security as their primary or only source of income in retirement (was really only meant to be 40% of your income requirements)
• His advice:
  • The best source of financing is through “owner-occupied” loans
  • Many people in their 50s and 60s are looking to downsize from their current residence
  • If you’ve been living in your primary residence for 2 years or more, you can sell your primary residence tax-free up to $500,000, if you’re married, filing jointly or for $250,000 if you’re single
    • You can then use that money to buy a small home, more conducive to your retirement lifestyle
      • Buy a property where you can rent out part of it to offset household expenses
    • Use the remaining money to buy in markets with great cash flow
  • Or, you can use the equity in your home to buy great rental properties in good markets for great cash flow
  • If you want more simplicity and peace of mind in your retirement, you might help out your kids or grandkids and partner with them so that they could owner-occupy a property to do a “kiddie condo loan” for their benefit and your own

Current Business

• Goals are a moving target
• Wanted to retire with a certain number of units and he has already passed that goal
• Now is just fun – feels like he’s playing Monopoly
• He has significant equity
  • ROE Formula – He can sell the property and get the equity to work harder for him outside of the property
• Wants to earn $500,000 per month or $6 million a year
• 500 doors would help him get there
• He doesn’t need this money and just enjoys what he does but with the funds, he hopes to
  • Reach family, friend
  • Help charitable causes
  • Influence people for the positive
  • He wants to help others reach financial freedom and success
  • Create a legacy for his family
• He feels confident he will get and surpass that goal in time, judging from where they are now and where they are going

Rap-It-Up

• Favorite real estate book: Tax-Free Wealth by Tom Wheelwright
• Favorite business book: The E-Myth Revised by Michael E Gerber
• Most valuable web site for success (other than your own): BiggerPockets.com
• Favorite app:
• Favorite quote: “The sooner you can control as much real estate as possible, with as little money of your own out-of-pocket, the faster you will become wealthy or achieve wealth.”  David Lindahl
• If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business?  I’ve been there before where I have only had $1,000 or less.  I would do two things: 1) A direct mail campaign to targeted ares in his community that he knows are good places to invest to try to negotiate a seller-financing opportunity to buy their property.  2) I would borrow money from someone, that I would season, for 6 to 12 months, negotiate a 6-7% buyer’s agent commission on purchasing their property and use an FHA loan with 3.5 to 5% down.  And, upon closing on the property, I would take that commission amount and use that to pay off the lender and then would own a fourplex without owing anyone else.”

How You Can Reach Jason

• Email: creativegainsllc@gmail.com
• Website: GetCreativeGains.com
• Phone: Lisa (office manager) 801-362-0784

IF YOU LIKED THIS PODCAST, we would love if you would go to iTunes, Stitcher, GooglePlay, iHeartRADIO and Spotify and Subscribe, Rate & Review our podcast.  This will greatly help in sharing this podcast with others seeking to learn real estate investing as a means to achieve a successful retirement.

Check out our other podcasts at olddawgsreinetwork.com.

Get a FREE copy of our 3-Minute Rental Property Analyzer at olddawgsreinetwork.com.

Episode Sponsor: Meno Studio – menostudio777@gmail.com