Afford Anything - Live Q&A with Paula on Real Estate and Travel

Episode Date: November 28, 2016

#53: This episode is a little different. Instead of interviewing a guest, this podcast episode is a recording of a recent talk I gave in Equador. The audience wanted to know more about the context surrounding the decisions I've made regarding business, investing, and money. In other words, why I've only spent three years of my life in a 9-5 job, and why I've dedicated so much of my time to travel. There is a lot of real estate talk as I take Q&A from the audience, but the idea behind releasing this talk is for you to see how any investment can help you design your life around your values. Money and investments are just tools that you can use to craft a certain lifestyle. Here are some of the highlights from the talk: •    How I was introduced to the concept of freelancing, and how it helped me quit my job and buy real estate •    My real estate investing strategy in a nutshell - buy what no one else wants to buy •    The risk of being too excessive with renovations as an investor, and how I've managed renovations •    How I use the One Percent Rule when running numbers on a property •    My original goal for owning rental properties (and why I don't want 100's of units) •    The surprise deal that came about because of my blog •    The opportunity cost of investing in real estate instead of the stock market •    Why the next rental won't be in Vegas (where I live) •    Why I'm not in any hurry to buy another property •    Why I would buy apartment complexes in cash if I had a billion dollars •    The benefit of diversifying into a different city and how to do it •    Retailers I recommend buying from when it comes to kitchen materials •    Financing without W2 income •    Why I'm against high-leverage •    The other projects I'm working on (why my focus isn't on real estate investing right now) •    "Pearls of wisdom" from traveling •    My favorite travel destinations •    Why I started a blog and my thoughts on monetizing •    Real estate isn't a passion - it's a tool Enjoy! -- Paula Resources Mentioned: •    Cash Flow Reports for Rental Properties •    The course I'm working on - VIP List •    HUD Home Store __________________________ I also want to take a moment to thank the sponsors for this episode. First, huge thanks to Nerdwallet. Their new app lets you have one-on-one conversations with financial advisors. You can chat about anything related to money, such as retirement, investing, insurance, or paying off debt. You'll get personalized, one-on-one advice -- available at no cost to you. Check it out at no cost to you by visiting http://nerd.me/paula _________________________ If you've been listening for a while, you've heard me interview many best-selling authors. Before I interview these guests, I need to read or refresh my memory of their books. Sitting down to physically read the books can take a long time. That's why I listen to their audiobooks, thanks to my subscription to an audiobook service called Audible. If you want to give them a try for free, head to http://audible.com/trynow for a free 30-day trial. _________________________ To see the slides from Paula's presentation, go to https://affordanything.com/episode53 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything, but not everything. And that's true, not just for your money, but also your time, energy, any scarce resource in your life. So how do you make decisions about how you're going to direct those limited resources? What type of life are you going to create by the way that you interact with your money, your time, your energy, your focus? By the way that you make your choices, what life will you lay out? My name is Paula Pant, host of the Afford Anything podcast where we tackle these questions.

Today's episode is a little different than usual. Rather than interview a guest on today's show, I've decided to share with you a talk that I recently gave. Now, as you're going to hear, this talk is fairly audience interactive. I began by asking them what they want me to speak about, because a lot of times when I go up in front of crowds, people want me to talk about real estate that tends to to be where the conversation goes. It's not that I really want to talk about it necessarily. It's just that that's what people seem to always ask me about. This talk was special because a lot of people asked me to share my life story so that they could understand the context of the choices that I've made about my own work, my nine to five job. I've only been in a nine to five job

for three years in my entire life. I talk about that a little bit. I talk about travel. So this talk, particularly the beginning of it wraps my investing choices and my money choices into the context of how it affected the broader scheme of my life, how it affected the way that I spend my days, not going into an office, traveling whenever I want to. It really contextualizes the meaning behind why we save, or at least why I saved and why I started investing so hard. So hopefully you'll get something out of this talk. It does veer, a lot into real estate. That's just what tends to happen when I'm taking Q&A from the audience. But I also hope that when you listen to this, you are able to put that into a broader context

and understand how any investment, whether it's real estate or index funds, how any type of investment can make a huge difference in allowing you to design a lifestyle that's closer to what you want, not what society has foisted upon you. So that said, here's a talk that I recently gave. Enjoy. I guess I'll just start with my life story. It didn't even incur to me to talk about that. My name's Paula, and I was born on a misty October morning. Yeah, so I graduated from college in 2005, and like most people, I got a job because I thought that that's what you were supposed to do out out of college. Now, I guess I'll dial this back a little bit. When I was

in school, I really wanted to travel, and I looked at study abroad programs, and they were obscenely expensive. Like, studying abroad, I went to the University of Colorado Boulder, and to study abroad anywhere in the world was like 15 grand for a semester. I wasn't going to pay for that.

And so all through my college years, I wanted to travel and figured I couldn't. And I hit this moment of crisis right before graduation where I thought to myself, wow, I'm going to go into the workforce, I'm going to get two weeks of vacation a year, and then I'll be 65 before I ever get to travel. And that just sounded like a death sentence for me. So right at the time that I graduated from college, and I had one of those really useless degrees that doesn't like go anywhere or do anything

for you, right at the time that I graduated, I had a sense that I wasn't going to spend the next 40 years in the workforce, but I had no idea how I was going to execute that. What I wanted to do in the very short term was just go travel. And I thought very much about this whole study abroad issue, and I realized, I didn't really want to study. I just wanted to go abroad. So I figured that if I just worked for a few years and saved up a bunch of money, I could then just quit and live on my savings and go run around. I didn't know anything about investing. I didn't know anything about financial independent. I didn't know any of those concepts. My idea was just to work for a few years, quit, live on my savings, travel, do that until I run out of money, then go find a job again.

And that's more or less exactly what I did. From 2005 until 2008, 2005 I graduated, and 05 to 08 was the only time I've ever had full-time W-2 employment. I worked for a very, very small newspaper. My starting salary was $21,000 a year. It was in 2000. $2,05. I actually ran the inflation calculator on it. I think it's like $24,600 in today's dollars. Over the three years that I was there, I had a couple, like one big promotion that got me to a salary of $31,000. And so that was my salary at the time that I quit my job in 2008.

While I was there, I started meeting freelance journal. And that was a concept I had never heard of before. I had no idea that it was possible to earn money outside of W2 employment. And so I started freelancing on the side during the evenings and weekends. And that paid a lot better than like at an hourly rate. I was like, this is amazing. I'm making the equivalent of like 21,000 a year, if divided by 2,000 working hours a year, that's $11.50 an hour, which is what I was making when I started. But freelancing, I was making like the equivalent of $50, $100 an hour. And I was like, this is awesome.

So I saved all of that money outside of taxes and put that all just into a savings account. And after three years, I'd saved the equivalent of one year's salary. I'd saved $25,000. And so I was like, I'm rich. I'm rich. And then I quit. So April 2008, I quit my job. and flew to Egypt on a one-way plane ticket.

I had originally planned on doing it by myself, but then I met that guy. He tagged along, plus one. So, yeah, I traveled for two years. I had no plans of what I was going to do when I came back. And so 2008 to 2010, I was just, like, being a useless bum and not being a productive member of society. It was great.

I highly recommend it. And in 2010, I came back to the U.S. And I was like, I really don't want to work for somebody ever again. So I decided to be a full-time freelance writer, started saving very aggressively, saving the money that I was making from that. And after like six or nine months or so, Will and I scraped together enough savings to buy a rental property. And at the time, we didn't really know anything about rentals. We didn't know how to run the math. We didn't know what a cap rate meant.

Like maybe it's the rate at which you acquire baseball caps. Sounds reasonable. Like we didn't know anything. We just had a hunch, which is really a terrible way to invest. I don't recommend that either. Most things that I've done in my life, I really don't recommend. But that thing we did right. Like we got, somehow we got that first house right.

And as Rich and I were talking about, the biggest obstacle is just buying the first house because that's the scariest part. And once you buy the first one, it's like meth, you just can't stop. The world needs more. Never mind. And so, yeah, from there, we just escalated. And we bought a second and a third and a fourth.

And at this point, we have seven units. Everything that we've bought has been a fixer-upper. So this is obvious, if you can't tell what that is, you've got some problems. But, yes, this is an example of a big kitchen, before and after. This was our second property. It was a foreclosure. We bought this house for $21,000. Initially, at the time that we bought it, we put $10,000 into renovating it to the point where it was just habitable, like getting it rent ready for the first tenant. So we were in it for $31,000. We rented it out

for, I think right now it rents for somewhere around $8.25 a month, ish. At that time, it might have rented for $750 ballpark somewhere around there. So the numbers look good. And right now we're doing another renovation. We're putting another, I don't know, 10 or 15K into it. So, sorry? Oh, so all of our houses are in the Metro Atlanta area. We lived in Metro Atlanta at the time that we started this. About a year and a half ago, we moved to Las Vegas.

So now we're managing this remotely. And I give, like, all of the credit of that to the team that I have out in Atlanta. Like, I've got the world's best contractor. You cannot have him. He is all mine. I've got a great property management company. You can have them. They have more capacity.

We just got really, really good people there. And that has been key to everything that we've done is just be a magnet for good people. And the rest kind of follows. So, yeah, so that's an example of one of our kitchens. All of our properties are single family homes, except for one building, which is a triplex. The triplex was our first. So this is an example of a kitchen in the triplex. And for some reason, I don't think I actually pulled the F.

of that particular kitchen. But this is a different kitchen in a different unit in the same triplex. So this is an example of what after it looks like, I guess. But, I mean, basically I'm just showing you this to illustrate, like, everything we've bought has been a fixer upper. And a big part of how we have gotten the returns that we've had has been buying things that other people don't want to buy. You know, like primary residents tend to, most of them,

tend to want homes that are turnkey, that are move-in ready. and if you're willing to buy something that needs work, you can often get better deals. If you're willing to buy a short sale, which means you might have to wait for a lot longer for the bank to approve the sale, a lot of people don't want to wait, not just primary resident homeowners,

but also investors, particularly those like people who flip and who do a lot of volume, a lot of them don't want to wait. So if you have a strategy like we do, which is to buy one house a year, which is super manageable. Yeah, I have no problem waiting 90 days for a bank to rubber stamp the sale. And because of that, I can get properties that are 10% cheaper than what Bob next door is buying.

So you get that instant equity at the closing table. Not that it's about equity. It's about cash flow. But here's another example. This is Pouse number four. And we renovated this recently. We renovated this earlier this year. So we were living in Las Vegas when this renovation

happened. This is what it looked like midway through. I suck it taking before photos, so I always end up with a bunch of during photos. And this is what it looks like now. By the way, this is not hardwood. That is porcel and tile that looks like hardwood. Best thing ever. You can get it at floor and decor for like nothing. So when we started, we were like really detailed and we made these incredibly detailed plans. So this was the plan for the kitchen remodel in the triplex. Today, These are... That was the plan for the renovation that's happening right now,

like as we're here in Ecuador, that house number two is getting remodeled. That was the drawing for that. So we've, like, chilled out a lot over the years. One thing that we do on the topic of fixer-upper's, when we buy a property, so this is kind of a... When you talk about fixing up a property,

there's like, that's a really blanket term that could refer to anything. There are properties that are at the point of just being uninhabitable. They need repair in order to get a certificate of occupancy. And obviously, if you've got a property in that stage, which some of our properties have been in, you've got to fix them up at least to some degree. When I consider the price of a property, I think about the purchase price plus the amount of money that it's going to take to get it too viable.

And by viable, I mean it may not necessarily be performing at its high. highest and best, but it's at least rent ready for the first tenant. And so when we buy a property, we get it depending on like how much cash we have. We've renovated, we've bought with loans, but we've always renovated with cash. We renovate to, like we'll renovate to the point where it's viable. Get a tenant in there, rent it out for a few years. And then when we're in a better cash position, then during a turnover, this is exactly what's happening with the house number two right now during a turnover, we then will take that property from viable to optimal, which means that at that point, it's renovated to the point where it's at the top of it

of what it could get in that market. And so that's basically our strategy. And then the thing that we have struggled to avoid, and this kind of comes with experience, is knowing the difference between optimal and excessive, because at a certain point, you know, at a certain point you are increasing rent, decreasing occupants, or decreasing vacancy, getting better quality tenants, like at a certain point, your decisions make sense, but then it's easy to kind of, especially on the first one or two properties, go way off the deep end and renovate it the way you might renovate your own primary residence because of like an emotional attachment to that property. And so the more you can sort of detach emotionally detach from the property, the less likely

you are to steer into the excessive side of the chart. And actually having distance really helps with that. So if you are thinking about investing in a city other than where you live, that distance can help you, I don't know, make decisions as a business rather than as a, and from the framework of a homeowner. And that's just something, again, that's really a risk in your first couple of properties. Once you have some experience under your belt, you'll be less likely to do that anyway because you'll stop coming from a primary. resident perspective. Yes. In House number two that you're currently doing, what are the things you're changing to take it from viable options? Ah, okay, so at the time that we bought it, the cabinets were like 30 years old

and waterlogged. We actually, like, put like a little piece of board to, like, hide the waterlogged, like, base. So when we bought it, we changed out the hardware. We changed the hinges and the handles, and we painted it, but we kept the old cabinets in place. Now we're like changing out those cabinets for IKEA cabinets. The countertop was like laminate. We're using granite. When normally we use granite tile, in that particular house we happened to get a really, really cheap deal on a prefab slab. So that house happens to be getting like slab granite rather than tile granite.

But for most of our properties, we'll use just like, do you guys know what I'm talking about when I talk about? granite tile, yeah, 12 by 12 or 16 by 16 or 18 by 18 granite tile, because it gives that wow impression that granite gives, but for like a fraction of the price because tile is so cheap, both in terms of material and in terms of labor, you know, because you don't have to like deal with all of that transportation and the headache and the hassle of the installation. What else are we doing? In the house two, just little things like the bathrooms really needed to be remodeled. they had the like salmon pink tile, the six-by-six ceramic, salmon pink ceramic squares from the 1970s.

So we're ripping all of that out and putting in like 12 by 24 neutral-toned tiles and putting in a new bathtub, that sort of deal, you know, changing out the hardware. Oh, and the big thing that we're doing, and we're going to start doing this on all of our properties, we've already done it on House No. 2 and 4. Rather than putting in carpet, which has to be replaced every couple of years, we're pulling out all of the carpet from all of our properties and moving them all over to 6x-pricle tile, the type of tile that looks like hardwood, because it has the durability of porcelain tile, and the look of hardwood, and then you don't have to replace it all the freaking time

the way you do with carpet. Nor do you have to fight with your tenants about spills and stains and carpet cleaning and all of that. So, I've heard really good things about rubber vinyl too, but I haven't tried it. Yeah. Do you have that contact for that flooring on your phone?

Yeah, floor and decor.com. It's not on your blog. Yeah, I mentioned it in one of my blog posts, too. Oh, yeah, and I've got a link actually our specific tile on there. It's porcelain. Yeah, yeah. It's a porcelain tile.

And it's from a store called floor and decor. They're nationwide. Yeah. Do you feel that your contractor has sort of the same vision as you do in terms of the difference being viability, optimal and excessive? Or is that totally at your direction? Mm-hmm. You get into some of these specific decisions.

It's totally at my direction. Like, basically, my contractor doesn't, and I don't mean this to sound pejorative. I'm going to turn the lights back on. My contractor doesn't have vision. He does what I tell him to do. But that being said, I've worked with the same guy for so long. At this point, he knows what I want.

Like, for example, he knows that I'm not just going for cheap. I'm also going for durability. Carpet is, like, flooring is a perfect example. Like, technically, carpet is cheaper if I were to get, like, an 18-ounce carpet with, like, a terrible 18-ounce carpet is like very cheap to install, but it's not going to last. And so I would much rather pay more for like to tile the flooring, even though that's going to cost me more up front, knowing that that's going to be a lot more durable in the long run. So he knows things like that. And that's just really a function of me having said that to him multiple times. I don't know

if I answered your question. Yeah. Cool. Do you aim for 2% return from rent, 2% is the rent that you can get for months. Ah. That's a really good question. So his question was, do you aim for, well, basically his question was about the ratio of the cost of a property to what it will rent for. There's this kind of rule of thumb that I go by, which is, I call the 1% rule, which is that for every $100,000 worth of property, the price should rent for, it should gross at least

1,000 per month in rent. So for property is $200,000, it should gross $2,000 a month, $300,000 a month. Now there's another school of thought that's the 2% rule, which is just double that. Every $100,000 worth of property should gross at least $2,000 a month in rent. I think that in certain neighborhoods, like Class C, Section 8, you know, like basically when you think of properties, like, you know how Vanguard has their risk-reward spectrum? that they always show you. If I'm on like the high end of the risk-reward spectrum, meaning I'm investing in a neighborhood where I'm more likely to have issues,

tenant issues, things of that nature, they're known as Class C neighborhoods. Somewhere like that, yeah, I'd want to go for 2%. Where I tend to invest, because I tend to go for more like Class B, class B-plus type of stuff, there I'm happy with 1%. So, and that actually reminds me, Tadda!

So I figured I just give you these numbers. So these are all of our units, and this is what they, this was the initial purchase price, and then these were the upfront repairs. The numbers on the triplex are a little different, like just consider a giant asterisk over that because it was, that's a whole different long story.

But with the others, this is what, we initially paid. This is how much we put in it to get it ready for the first tenant. And so this is like the total price that it cost at the end of all of that to turn it into a rental. And so with the 1% rule, my goal is to make sure that this monthly rent, monthly gross rent, was going to be at least 1% of this number. Because when I consider purchase price, I'm using the word purchase to reference both purchase plus upfront repairs to get it. viable for the first tenant. Obviously, we've done really well, and that's the rest of the spreadsheet. But that being said, I mean, for every house that you see here, I've looked at thousands of properties

that I have not purchased, you know, and I've made offers on, I don't even know how many. I've been under contract many, many times, and then backed out. I've paid for many inspections on many properties that I haven't bought, which is really painful because your sunk cost fallacy is like, I just paid $400 for an inspection. I should probably just fork over the other $150,000 for the house. So yes, that's the story that's not in the spreadsheet, is all of the properties that I have bypassed on the way to finding these. That's the other thing about rentals is that there are many different approaches to it. And my approach. is fairly conservative.

You know, I'm not trying to acquire a lot of units. My goal from the very beginning was to get myself to the point where I would never be at risk of needing to get a W-2 job. I, like, never wanted to be in that position. My goal was never to own hundreds of units. I just wanted to create immediate cash flow that would create the ability, like, that would create that buffer for me to not have to ever, be employed and be in a position where I have two weeks of vacation a year. Yes.

I have all these total acquisition costs. How much is finance right now? Like, thank you to you and then you're just less of your own money in? Yeah, yeah, totally. So, okay, so all of these repairs, with the exception of the triplex, all of these repairs we paid for in cash. This we purchased in cash, this we purchased in cash, and then these three we bought with loans. And we also have this one, loans. So right now, ballpark, I would say that we probably have a 50-50 position in terms of equity to debt. So, yes. I'm looking at this correctly. How summer two is an absurdly of B-O-S. Yeah. You are looking at that correctly. Yeah, yeah, yeah. That one we got, yeah, we did well.

Can you explain how you got that? I'm awesome. So that one actually came about, I'll tell the lovely story of like marketing and networking and being open to opportunities, blah, blah, blah, blah, blah. Really, it came about through the blog. This woman emailed me and she was like, hey, I'm a foreclosure agent. I live in your city. Do you want to go get lunch? And I was like, sure. And she was a foreclosure agent who represented Wells Fargo.

And so she, her job was to represent properties that were owned by Wells Fargo. And she herself was not allowed to buy any of these properties. it would have been a conflict of interest. But we stayed in touch. We became friends. We went out to dinner like every now and again. One day she contacted me and she said, hey, this property has been under contract forever.

The paperwork is finally approved and this thing can close very soon. The buyer has gotten sick of waiting. So the buyer has walked. I don't want to go through all the paperwork of relisting it. If you can produce cash, it's yours. And so that night, As soon as I hung up the phone, Will and I went to the property, looked around, put it under contract the next day. So really, like, that came about just by, I guess by networking, as much as I hate that term.

And I think really the reason that she contacted me as opposed to anybody else is because I was very specific about saying, I'm looking for a three-bed, two-bath, single-family home in the 30-0-3-4 zip code. I was really specific about that narrow search criteria. And so when something like that came up, she thought of me immediately. Did you already have an idea that the price could be that low? Or was it already priced? Yeah. So the three, I mean, even to this day, the 3034 zip code is like my favorite zip code.

So, yeah, I knew that houses there were a very, very good deal. And I mean, yeah, this one was like exceptionally good, but I mean, if that hadn't happened, if I had bought like an ML, just a property off the MLS, the next door neighbor's house, probably would have been like $41,000. So, yeah, it was a good deal. But even if this number was $41,000 instead of $21,000, and this final number was $51,000, you know, we're still talking 2% rule. So I knew that that existed in that neighborhood.

And that was why whenever I talk to people, like, Just introducing myself to anybody. I was like, hi, my name's Paula. I'm interested in the 3034 zip code. If you know anything, let me know. And so that was why, like, when people saw stuff there, they thought of me. Yes. I'm guessing that you've been doing this for less than seven years.

So you have about half of your equity paid off and half of it is financed, you said. Ballpark, yeah. I mean, but across all of them. Okay. So is it safe to assume that you didn't pay cash for those? properties out of profit on the other properties? There must have been influx of other income that don't invest in those. Yeah, yeah. Will and I were both very aggressive savers. So from 2010, which is when we came back to the U.S., through all of this, we saved about half of our income

and just we threw everything. I mean, we'd have 401ks and IRAs and HSAs, but other than that, like we just, we threw everything we had at buying real estate, buying and fixing real estate. Ultimately, that helps your cash flow at the end of the day having ones that were bought with that. And that's a lead into the next slide, cash flow. So this is, about a year ago, I started publicly disclosing the cash flow that we get from all of the properties combined as well as the amount of time that we spend on it. And so I realized I've topped the chart with like the loser.

Wow, that looks terrible. But this is how we've done, this is basically our performance from October 2015 through July of 2016. Again, this is across all of our properties. And this is just a straight up cash flow report, which is why, you know, like, if there's a month where we don't have any particular heavy repairs or maintenance issues, like that's going to be a fat month. and if there's a month when we're renovating a property, that's going to look like that. It's going to be deep in the red. So, you know, this is not a report that makes predictions about how much we're going to spend on CAPEX over the next 20 years and, you know, averages that out. Like, this is just straight up what hit our bank account and what got taken out of our bank account in cash every month, as well as how much time Will and I combined spend on the properties, on property investing. But this doesn't involve your loan payments.

It does. Yes. This is everything. After repairs, yes. It's after everything. After mortgage, after principal, interest, taxes, insurance, repairs, maintenance, management. Vacancies, obviously, would affect the top line. So basically, the gross revenue, top line revenue, tends to be around $10,000 per month. and then the amount of cash that we pocket at the end of all of that after paying all of our costs ends up being what you see here. Yes. How do you do your time? Do you just guess, or you're pretty diligent about keeping track of what you're actually spending your time to?

Yeah, we're pretty good. We batch a lot of the work. So it's like if I sit down and log into our accounting program and look over all of the receipts and do all of that, like that's, going to be 40 minutes in one chunk of me, like, going over all of the documents, you know, so that's, like, easy to do. If Will is making phone calls, he'll call the tenants and the contractor and the whatever, you know, like all at the same time. So batching helps. I mean, yeah, there's going to be, like, five minutes here, five minutes there that, like, we'll just round it up to a half hour, you know, to account for all of that. But this is pretty solid. like this is basically the best that we can do without being uh without like having a stopwatch

have you ever um looked at what the opportunity cost of the money that you have in equity is like relative to the market and then how your numbers would pay a relative to that nope never did what i would say so here's some like broad rules of thumb that i use with the market when you look at the the price of a stock is asset value like the increase in the asset valuation as well as the dividend that it pays out. And those two together combined make up the total return, which will be 7, 8, 9, whatever percent it is. The same is true, I mean, leverage kind of complicates it, but if you were to just take that complication out by assuming that you're looking at an unleveraged property, then the total return

on that property would be like the net operating income, which is the same thing as your leveraged cash flow, plus any increase in the price of the home. Now, I don't like to make any, like, my phrasing is like appreciation of speculation. So I don't like to make any guesses about property appreciation. Like, I don't want my strategy to be based on that whatsoever. So in my model, my mental model, the property is going to keep pace with inflation and nothing more. Because historically, that's what the majority of homes in the United States is, states have done. And so if a house appreciates at about 3%, which is the rate of inflation, and if it produces unleveraged net operating income of about 6%, so a 6% cap rate,

then the total return there is 9%, which is about what you would get doing well in a total stock market index fund. So as long as I am getting a 6 cap, a 6% cap rate, then I'm happy I'll buy that deal all day long. So I guess to that extent, I guess I have, I haven't literally, like, looked at the equity in my home compared to what happened between 2011 and today. But if I entered the market for this house and, you know, like I haven't got broken it down to that granular of a level. But I have put a rule in place that I need the equivalent of a 6% dividend payout,

plus 3% in appreciation, so a 9% percent. total return for me to put my money into a house. And there are some investors who would argue with me about that. Probably most investors would argue with me about that because there are a lot of investors who will make the argument that if you put less of your money into a deal, your cash on cash return is higher, which is true. But again, my, just my, my philosophy tends to be much more conservative. And I like to analyze houses as though I were buying them in cash. Because another one of my rules, in addition to appreciation of speculation, another rule is, if you wouldn't buy it with cash, don't buy it with a loan. Don't be reliant on debt to make a bad deal good.

So why one house a year, why not two houses a year? Because I'm lazy. Yeah. Hey, have you ever wanted to talk to a financial advisor just to ask like one question, maybe two? Well, guess what? NerdWallet has this cool new app that lets you have one-on-one conversations with financial advisors through your phone, and it's available at no cost to you. You can chat with an advisor about anything related to money, such as retirement, investing, insurance, debt, all things money-related. And you'll get personalized one-on-one advice.

Check it out at no cost to you by going to nerd. slash Paula. That's nerd.m.m.m. p-a-u-l-a. Hey, everybody, this is Steve, the guy who does stuff for Paula. Before we get back into this episode, I want to remind you that the slides that Paula refers to are available at the show notes. You can get to those show notes very easily. Just go to afford-anything.com slash 53 that will direct you right to the landing page on her website or in your smartphone or your smart device in the show notes right at the very bottom, you'll see a URL that shows afford anything.com slash 53. Just tap on that. It'll take your smartphone right to the show notes. You can view the slides and all

of the show notes for this episode there. Again, that's afford anything.com slash 53. Now, back to Paula, live Q&A in Ecuador. How cool is that? So Paula, why one house a year, why not two houses a year? Because I'm lazy. Yeah. Yeah, sheer laziness. Buying a house is... Rich is really good at it. You should get advice from him. He manages to do it without, like, too much sweat and heartache.

But for me, like, once I buy a house, I'm tired and I don't really want to do it anymore for, like, another six months. Will your next house be in Atlanta or in Las Vegas? It's definitely not going to be in Vegas. So the benefit to having everything in Atlanta, for me, is that my whole team is there, like my property management company. We have like an amazing electrician there. We have a great plumber.

We have a great general contractor. And so I don't have to reinvent the wheel. Like as soon as I buy a house, I know exactly who to call. And our contractor, the main guy that we work with, I mean, at this point, like, he'll like show up to a house to check it out for us. You know, we'll still get a proper inspection done, but he'll also drop by to give us his like unofficial two cents. And so that's the benefit of like, it's a business and that business is based in a location, you know, and the team is there. So I would consider some other cities,

but I probably wouldn't buy a single family home there because I don't want to reinvent the wheel just for a single unit. If I went into another city, I'd want to buy like at least a fourplex or maybe a few fourplexes. just so that I could like, if I'm going to go through the trouble of reinventing the wheel, I want it to be worth it. I want it to be worth my time. Yes. Are you going to cap your actresses and shoots at any point?

Every house that I buy, I always say is going to be the last. And then I go for six or eight or nine months. And then I'm like, yeah, maybe just one more. So again, with the meth analogy, it's like, you know, you're like, no, I'm done. One more. So I guess that's another way of saying, I don't know. But I mean, at this point, I'm not in any hurry to buy anymore because I'm happy with the cash flow that we're getting.

Right now, we're getting, in a normal month, 4,000, 5,000 per month in cash flow after all expenses. And so that kind of decreases my motivation to, like, do a whole lot else. But, yeah. If you're respecting it, 10 would be enough because I'm starting to spread myself a little or I feel like I could go to 20? I don't think I want that many. I mean, even like seven, which is what I have now, seven units, they're great, you know. I'll put it this way.

I think the risk of having a goal that is based around a given number of units is that depending on how attached you are to that goal, you might end up buying a unit because you want to make a purchase and not because it's a great deal. So if I find a great deal, I'll buy it, but I'm not attached to the idea of owning X number. Yeah. Yes. Are you doing any of it because you're addicted to them? Because, for example, like just hypothetically, if you stumbled into an extra $1 billion next to you, when you woke up, would you be like, I'm going to keep buying a house.

So they're going to be like, I'm going to get rid of these things. I totally don't need them anymore. If I had an extra billion, like tomorrow. I would buy a bunch of apartment complexes in cash. Okay. So you actually enjoy the game of it, even though we don't care about the, like, they didn't have no use to you at all. That was the point of my question, but you just like it.

Yeah, well, what I, so the reason I would buy a bunch of apartment complexes in cash is like, number one, rentals are kind of that hybrid between a business and an investment, where like if I just put my money into like an index fund, and I love, index funds and my 401k and IRA and HSA are all in there. I don't get any level of judgment over how it's managed. Whereas with a rental property, it's like just that right hybrid of like, I get to be an entrepreneur and like run a business and make decisions and see that the direct consequence, like my judgment, good or bad, affects what happens. Yeah. I asked myself that question even though I didn't get a plane dollars.

I realized like, oh, I'm only doing this for money, so then I forced myself to sell. The rental analysis is not even though I claimed. It was fun. Well, I was doing it, then I realized I wouldn't do it if there was zero rent. Yeah. I definitely wouldn't.

And again, this is just me, but with a billion, I would pay off all the mortgages and buy everything else in cash. Yeah, I wouldn't try to leverage that into like $10 billion, You know, I would just like stick with a billion and be fine with... Yeah, you know. People can live on that.

Yes. So you and Rich both have owned properties, not in where you live, but in cities where you have lived in the past. Would you, like if you think about apartment complexes, or are you thinking about somewhere you haven't lived before? Yeah, honestly, I'm thinking Boise. Really? Yeah.

I'm really loving on Boisey a lot. Okay, so the benefit. to consolidating in one city is, I've just explained that. The drawback is that if, if that city goes the way of Detroit, yeah. Yeah, so we've also talked, we've talked a lot about the yeah. So we've also talked about the benefit of diversifying into a different city just so that, just so that we can be a little bit more diversified. Do you feel like we have enough knowledge about, I mean, like Atlanta, you know exactly what zip code you wanted? Do you feel like, maybe you've been there enough or, you know? No, I've never been there, actually.

Yeah, I've never been there. I like it on paper. The numbers look good. I think the city probably has really good potential. I would definitely spend some time there before buying a property just to make sure that, you know, I do my homework on paper first and then go there, partially to make sure that my impression of it in my head checks out with what I see, but largely to meet people. Because the stuff that you can learn just from both. buying someone a beer is totally different than the stuff that you would learn from reading,

you know, reading what they have to write about it. And so I would go to Boise, go on meetup.com, and find the investors there, and just like take them out to coffee, take them out to beers, talk to them. And if at the end of all of that, I was still feeling as good about Boise as I am today, yeah, then I'd get my eight or ten units there. I just have a question because you mentioned an IKEA kitchen and my apartment that I have in Cleveland was completely renovated before I moved into it and I have this amazing IKEA kitchen but do you buy them wholesale?

How do you, I don't know what the pricing is on their products because do you have access to buying them to the discount? Nope, just buy them as a regular retailer. I don't buy the full kitchen. I get the cabinets from IKEA, the countertops we make using tile, granite tile, which comes from floor and decor, the handles we get from IKEA. What else?

Appliances will get from either Sears Outlet, which has a lot of scratch and dent stuff. That's really nice. Also, brand smart is really good for that as well. Flooring comes from floor and decor. Paint comes from Sherwin Williams. By the way, use the same paint color in every property. So much easier. I learned that one the hard way.

I was like, this one has banana cream, but this one is cream yellow. Yeah, don't do that. The big box retailers, like Home Depot and Lowe's, I think, a really. really good for two-by-fours and plywood and like all those basic staples. But I typically don't look to there for finish level materials because you can often find them cheaper elsewhere. Amazon actually is really good. I've bought sinks from Amazon. I've bought lighting is really good from there. But I guess to answer the other portion of your question, no, I don't have like any special set up anywhere. I'm too like small time for that, you know,

It's only seven units. No one's going to waste their time on me. Yes. So without W2 income, how are you financing? Ah, yeah. That's been a huge pain in the ass. Really? So the first one is, the first one was the hardest. And I will say, so without W2 income, if you're self-employed and you've been self-employed for two years, then most banks will take two years of self-employment income. Especially if you're organized as an LLC, which they think makes you look more official, which is like very easy to do. Then, you know, so at this point, I'm regarded as employed. In fact, we were in the middle of a refinance right now. And the mortgage lender was like, oh, okay, you know, I, who are you employed by?

And I'm like, oh, I'm, you know, afford anything LLC. It's a single member LLC. I'm self-employed. And she's like, okay, well, can we talk to somebody to a verify your, employment. And I'm like, sure, yeah, I can do that. Would you like to hang up and call me back? So, yeah, with two years of self-employment, it's much easier in the beginning when we, I technically had two years of self-employment from like filing taxes as a sole proprietor for like a couple of freelance articles here and there from when I was traveling. But my income from those years was so,

like non-negligible to almost verging on non-existent that nobody would like we just got laughed out of everywhere we tried to apply for. So the first loan was really, really tough. And we got a lot of rejections. The second house we bought in cash, the third we had to go to a private lender who gave us a loan at a 7% rate. And after that, it got easier, you know. And then of course, since then we've been able to refinance down into lower rates and stuff like that. So yeah, but the first few were really hard. Uh-huh. So you're still looking at properties.

Uh, sort of. Yeah, I've got like a lazy eye on properties. Like if something really good comes up. So I'm wondering if you said each of those properties you own, you looked at thousands. Yeah. I'm wondering if you have the time in on your real estate timeframes. Oh, yeah, no, I'm not looking at anything right now. Goes back to Rich's question.

If I'm like going to aggressively look for a property, that's going to be a full-time job because to buy a property, to buy the right property takes a lot of time. Fortunately, you only have to do it once and then you just hold it forever, or at least that's what I do.

But I haven't looked for anything because I'm lazy and I don't really care that much about, like, growing the portfolio anymore. So, yeah. You've got other business interests. Yeah, yeah, exactly. Like I started a podcast in February, you know?

And that's like, there's a learning curve with podcasting that, you know, it gets easier over time, but when you're first starting out, you're like, what's a microphone and how do I upload things? So I've been like working on that and I'm building a course and I can't do everything. Like I'm like, I can do anything but not everything. And that's the thing is like I think because I talk about real estate a lot, people seem to think that that's like my primary business interest. But really, I spend more time talking about it than I spend actually on it. I'm like far more interested in learning about how to like host really good interviews,

host really good podcast interviews. I suppose, I mean, obviously you have the knowledge to acquire and the ability to acquire houses much quicker. Some of the main reason is because you're lazy. Do you have any issues with being highly? leverage to have houses quickly? Like, would you buy 12 years because you get rich faster? Yeah, yeah, okay. That's a good question. No, I don't want to be high leverage. So that is another reason that I purposely took a route. I take a route of gross low is I'm not totally, like, I'm not a Dave Ramsey about it, but I'm leverage resistant. I mean, that being said, like right now,

I could buy a cheap house in cash. I could, I could buy like a $100,000 house in cash right now. but am I going to spend a whole bunch of time? Like, if I'm going to be at a computer for 20 or 30 hours a week or 40 hours a week, like do I want to spend that time at that computer on HUD Home Store, like looking at what's available on auction, or do I want to spend that time planning out the next podcast? I can do one of the two. Yeah.

Can I jump topics and ask from your two years of travel, any like pearls of wisdom that you have or any things that, You would share with us for anybody who's considering doing slow travel down the road or travel or whatever you do. Yeah, so I did slow travel and that was great. I would go somewhere and stay there for like a month or at least for like several weeks depending on where I was. What was really nice about that was that I was not so much being a tourist as I was just like

living my life in a different backdrop. And so like I think the benefit to that, yeah, it's cheaper because you're not like in transit as often. But the bigger benefit, really, in addition to it being cheaper, is that, like, you meet people. And I think meeting people is, like, the biggest benefit of travel, I guess. Like, it's the biggest thing that I took away from it. Like, when I think about going to Egypt, yeah, the sphinx was great, but, like, those really weird kids that I met in Alexandria, who had the, like, funny ring lip piercing, you know, like, the afternoon that I spent with them,

that's the thing that I remember when I think about that trip. So I don't know if that answered your question or not. Yeah. I guess... A favorite place from your travels? Yeah, a lot of people ask me that. Favorite place, it depends on what category. Favorite secluded beach would be off the coast of Flores in Indonesia,

Soraya Island or Kanawa Island, either of those two. Favorite party beach would be like pretty much anywhere in Thailand. Favorite for like biking around temples would be Bagan in Burma, like Myanmar? Amazing. That's high on my list of places to go back to. Actually, all of Myanmar, if you can go there for Water Festival, that was one of my favorite experiences. Let's see, favorite.

I mean, like, so yeah, in terms of favorite, it's like, well, what, you know, it's like they all go into niche categories at a certain point, and, you know, lots of places are the favorite for some class of thing. Did you do it all back to back or come home? Yeah, so the 2008 to 2010 was a big, like I was just gone for the entire time. Since then, since coming back to the U.S., for the first couple of years, we didn't travel much because we were just like very aggressively saving. But for the past few years since like 2013 or 14-ish, we've been traveling to about five countries a year.

So now we're kind of at that phase in our lives where we still travel a lot, but it's like more like we have, now we have a home base and we'll go off and do a trip and then go back home. Whereas during those two years that we were traveling, like we didn't have a home at all. Like there was no home to go back to. As you get older too, do you find that you would rather, you know, you still want to travel. People like us will always have to travel, but you want to come home for our family. I think you were mentioned that before we just like being home sometimes and then get kind of recharge. Yeah, I do, but I think that also depends on what projects I'm working on.

Like the big thing that happened when I was traveling a lot was that at a certain point I had this, like I wasn't producing anything of value. At a certain point I was like, well, what am I doing? Like I'm not being productive. That really bothered me. And it kind of like, I'm happiest when I'm producing something. And so while we were traveling, I tried to do that, like, you know, I'm reading a lot and stuff like that. But now, I think the reason that I want to be home more is so that I can work on various projects that are easier to work on when I have a home base.

Like, that home doesn't need to be Las Vegas. It could be anywhere. It could be Thailand. It could be Cambodia. But, like, having a base of, you know, that's just like where I'm like, ah, this is me. This is my home. Yeah, I find it easier to, like, produce. things in a space like that.

So vagueness is at base now, but it could be anywhere. Yeah, preferably anywhere warm and sunny. Don't really like cold weather. Paula, do you guys take advantage on the like the White Sky type deals with your credit cards to making sure you're getting as much free travel as you can? Not really. I'm like very, very light. Like I open like one credit card a year,

so I dabble at the very, very outskirts of that. But yeah, I'm not deep into it. Uh-huh. Well, can you talk a little bit about blog in terms of when you started it? Yeah, totally. I started it in 2011 for a few reasons. Partially it was because I was, I mean, I used to write for a newspaper, so I've always loved to write.

You know, like my whole career history was like newspaper reporter, freelance writer, blogger. Like, there's a theme here. So, yeah, I started it partially because I enjoy writing, and I wanted an outlet for that, partially because largely, like the concept for it came because my friends, when I traveled, my friends kept saying, I would love to travel, but I can't afford it. And they lived much nicer lifestyles than I did. Like they had nicer cars, nicer homes. So I started the blog to kind of show them like, yeah, you can. You can afford anything, just not everything. So that was the other

reason that I started it. I never intended to talk about real estate on it, largely because I never intended to invest in real estate, I just kind of wrote about whatever I was experiencing at the time. And as I started buying real estate, I just started writing about it. And then I started attracting people who wanted to read about it. It's funny how that happens. So, oh, okay, yeah. So how do I make revenue from it? I don't very much. I mean, like, for the past several years, the blog became a bit of a marketing card for like freelance writing and consulting. So for the past several years, I got a lot of freelance writing opportunities and consulting, like general blog, social media consulting type of stuff that I never had to go out and find it came to me through that.

So that was really cool. And I did that for probably until the middle of last year was about the time when I was like, you know, I'm not really into this anymore. I don't think I want to do it anymore. So it's like office space where I'm like, I'm just going to not show up. So mid-2015 was when I started like decelerating from that. And all of 2015, 2016, I started like breaking my relationships with clients until now I'm, I think I've got like maybe one legacy client still, and that's about it. But I don't want to put AdSense, those big ugly banner ads. I don't want to put that on the site because I think they're ugly. And I think they really detract from the user experience. And I'm not really into affiliate marketing that much, because I'm

just not into it. So the big way that I plan to monetize it, hopefully in 2017, would be through a course that I'm creating right now that's currently in beta. But that course has not been created or launched yet, so right now I'm just not making much, which is fine. That's the benefit of having the rental properties. It's like, I can do that and I don't really care. And there's not like a big fire under my butt to like bring in short-term revenue because I know that I'll be fine. And that's really the point of the rentals. My passion isn't rental. Like my passion is not real estate. Real estate is just a tool that allows me to do other things that I think are more interesting. Yes. Can you expand a little bit on why you're not into the affiliate idea? I mean,

for instance, like, Cozy, you do recommend them, you do believe in them. Yeah. People that call, I'm sure you're assuming that they have a good experience. Yeah. Why are you not into that whole affiliate idea? Yeah, yeah. I'm fine with like, basically, if I happen to be writing, like, if I'm writing, and there happens to be a good opportunity to throw an affiliate link into a, you know, what I'm already writing, and it's for something that I personally use myself, then, yeah, sure, I'm willing to do that. But the people who make really good, like very, very good affiliate revenue are often people who will, most of them are often people who will decide what to write about based on affiliate

opportunities. And I don't want to do that. I want to have total creative control over what I write about. And so I don't want to like think to myself like, oh, I could make affiliate revenue from Cozy. I should write an article about how I use Cozy to, you know, like I don't want to, you know, I don't want revenue to influence content. And so as a result, I just never really went that big into affiliate marketing. Like I'll throw Amazon links in there, particularly if I'm recommending a book.

But I mean, I make like 4% of the sale of attendance. book, you know. So, plus I mean anything else that somebody buys on Amazon. So if they buy some, like, treadmill or something, then that's a pretty good day. But, you know, like, there's so many personal finance blogs where all you see, you see the same companies over and over and over, because everybody's pimping those companies because they've got the best affiliate programs. And every one of them has, like, the review post about those companies. And I just don't want to create that. The world doesn't need another one of those.

A little bit from you, that's really interesting. Thank you. Well, I guess if no one else has any more questions, y'all should do something else. Well, I'd love to wrap up by going over some of the main points, the main takeaways that we could get from what we just heard. That's how I typically wrap up after an interview. But of course, that seems a little silly when I'm,

talking about my own talk. So what are the main points that we can get from what I just said? That being said, the main takeaway that I really hope that you get isn't about real estate per se. Real estate and any type of investing, whether it's real estate or index funds, anything about money in general, is just a tool. That's all it is. Money and investments are a tool that allow you to build the type of life that you want to lead. So if you decide that you don't want to be in the nine to five workforce anymore, if you decide that you want to travel a lot, or if you decide that you just want the satisfaction of knowing that you have more freedom, more flexibility, more choices, money is the tool that allows you to build that, to have that, to design a lifestyle that is in line with your values, not with the status quo. That's the point of everything that I do and say. That's the point of everything that I write. And hopefully the chief takeaway that you get, not just from this episode, but from everything that I've produced.

That's the thought, the main thought that I want to leave you with. I hope you enjoyed the show. If you did, please do me a huge favor. Go to iTunes. Leave us a review. Those reviews are super instrumental in helping me produce great shows and giving me feedback about what you thought. While you're there, please hit subscribe. so that you'll be notified of future episodes.

And if you'd like to see some show notes from today's episode, you can check those out at podcast.afordanything.com, where you can also subscribe for email updates about upcoming shows. My name is Paula Pant, host of the Afford Anything Podcast. Thanks for listening, and I'll catch you next week.