BiggerPockets Money Podcast - 289: How to Retire in 3 Years (After MANY Mistakes) with Real Estate w/Hugh Carnahan

Episode Date: April 4, 2022

Real estate and early retirement go hand in hand. Most people think that it’ll take years (or decades) to build up enough cash flow to simply break even on your monthly expenses (lean FI). Those people probably aren’t thinking as big as today’s guest, Hugh Carnahan, who retired in only three years thanks to speed, diligence, and a courageous amount of risk-taking. You’d probably assume that to retire in three years, Hugh had to be a very financially adept person. Well, you’d be 100% wrong! Hugh struggled for years with his finances and committed almost every cash flow cardinal sin in the book. He made great income, saved almost none of it, then saved way too much of it, and thought that his path to financial freedom was through getting solar panels on his house, NOT buying houses. When a local business owner set him straight, he consumed as much real estate investing content as he could. He listened to the BiggerPockets Real Estate Podcast religiously and after 386 episodes, decided he should invest in real estate. So Hugh went and bought a nice single-family home, right? Nope. He did something much different—and he’s financially free because of it. In This Episode We Cover How to NOT practice the “pay yourself first” principle of investing and saving  Lifestyle creep and how it can eat away at your wealth, even as a high-earner  ESPP programs and the benefits of getting discounted company stock The BRRRR strategy and using it to force equity on your rental properties Commercial and portfolio loans, plus how they differ from residential mortgages  How to leverage cash-flowing real estate to hit financial freedom (fast!)  And So Much More! Links from the Show Follow Along with Mindy’s 2022 Budget Make Your Own Free Mobile Expense Tracking App in 30 Minutes BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Scott's Instagram Mindy's Twitter Apply to Be a Guest on The Money Show Podcast Talent Search! Check the full show notes here: https://www.biggerpockets.com/blog/money-289 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 289, where we interview Hugh Carnahan and talk about real estate and making literally every bad money choice you could possibly think of. I was like, oh, David Greeds does that like almost every day. Almost every podcast. He's like, don't buy stuff in a war zone. Oh, and there's a full chapter in Burr, which I listened to three times that I never heard once, don't buy properties in a war zone. So my mind was definitely like, take action, take action. I want to be financially independent. Hello, hello, hello. My name is Mindy Jensen. And joining you today is David Hip Hip, Hip, Peray, from the Military Millionaire Group, podcast, network, channel, yada, yada. He just left active duty and is now in the reserves, right? Are you in the reserves?

I am for at least a little while longer. In the reserves and working as a real estate investor buying up literally every house you can find in his area, right? Try and, yeah, we've done nine so far. It's March 7th. Wow. He is on a tear and he is here with. me to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone,

no matter when or where we're starting. So whether you want to retire early and travel the world, go on to make big time investments in assets like real estate or start your own business, we will help you reach your financial goals and get money out of the way so you can launch yourself towards the life of your dreams. Today's episode runs a little bit long, but that's because Hugh Carnahan has such a fascinating story. Don't let the fact that he's only, what is he, 33? 31. 31.

Don't let the fact that he's only 31 sway you from his fabulous story. He has still made a lifetime's worth of mistakes. He's made enough money mistakes for a hundred-year-olds. He started off making mistake after mistake after mistakes, simply because he didn't know what he was doing with his finances. He wasn't taught finances in high school. He wasn't taught finances in college. He luckily had an internship where he learned a little bit, but not enough to really make a great difference. And I think that a lot of people can identify with this story because I wasn't taught anything in high school about money. David, what did you learn about money in high

school? About the extent of my knowledge was that my wife, my mom had envelopes. And that was about the extent of my knowledge. And I actually, I even put this in writing, which I probably shouldn't have done. But I probably still owe her money because I used to go and sneak out of her gas, gas envelope and go by, you know, like, oh, it's for gas. I need gas when I was in high school. So, you know, not a whole lot of education, but I knew the envelope budgeting system. I didn't know that's what it was. But that was about the only info I got.

Yeah. I didn't get anything in high school either, except like how to write a job. check, like how to physically, like, what you put in each section of a check. That's not teaching you about finances. That's just teaching you how to get into debt because how can I be overdrawn? I still have checks. Do you ever hear that phrase? Oh, yeah.

You ever do that phrase? You don't want to know about my check balancing. Yeah. So anyway, Hugh joined David and I in making some mistakes and then went on to make some even more mistakes. And he turned it all around. I shouldn't give away everything, but he turned it all around through real estate investing. So this story that you're about to hear has mistakes about money and real estate to the rescue.

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I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leaner Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful as its breadth. Beyond audiobooks, you also get Audible Originals,

podcasts, and a massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money. Today's guest is Hugh Carnahan, the first person to successfully buy his way onto the Bigger Pockets Money podcast. What? Yep, way back on episode 245, where my co-host was Joe Sal C-high. Joe was casually mentioning how his uncle had told him, well, I don't have any extra money to invest.

And I jumped in and said, wait a second, there's no such thing as extra money. If you have extra money, send it to me at 3344 Walnut Street in Denver, Colorado, 80205. And Hugh took it upon himself to send me not only this letter, which is written in crayon, which I love, but he also wrote me a lovely letter and included $7. So Hugh Carnahan, thank you for buying your way onto the show. You better be funny. Welcome to the Bigger Pockets Money podcast. Well, thanks, Mindy.

Successfully bought my way on. That's right. Yeah. And if you're thinking about following in Hughes footsteps, it's already been done. So if you have extra money, please send it to Mindy Jensen at 3344 Walnut Street in Denver, Colorado, 8205. But and keep it under $10,000 because I don't want to report it to the IRS. However, you're not going to get on the show because of it. But I was to say,

he's already done it. Seven, seven dollars for, you know, 30 or 40,000 people listening to your story is probably like the greatest marketing ROI out there. So if you don't, you don't tell people that they can successfully do that, otherwise you're going to have a wall of people sending you seven bucks. Well, I did say that I wasn't, I didn't have extra money, but I was going to be investing the $7 in a beer from Indy. So Hugh, with that out of the way,

way. I do feel obligated to let people know that you did buy your way on, but I want to know about your money story because you do actually have also an interesting money story. So tell me, where does your journey with money begin? A long, long time ago. Oh, we don't have that much time. My money story begins as a kid. And I was growing up, my father was born in the Great Depression. He was born in 1929. So he grew up in a third world country. the United States. Wait, what? Hold on.

How old are you? I'm 31. How old was your father when you were born? Old enough. Okay, well. No, he was, he was 61. He was 61 when I was born. Okay.

Well, it's funny because most people's parents that I are, most people who are in their 50s and 60s, they share the same parent age group as me. And so my values are more established. Like, yeah, from that. from a different time frame. Here's an old soul. I'm an old soul. Yeah, I was going to say, I've met you in real life,

and you don't look like your dad was born in 1929. So he grew up. So my father grew up in a third world country in the rural Midwest in Missouri. And then my mother, she was born in Taiwan, which in the 50s was also a third world country. And so they had the very entrepreneurial, we're going to work hard and through blood, sweat, and tears,

we're going to make something of ourselves. Well, when I came along, I was the last one of 12. I was the only one of kids from the two of them combines. And while growing up, basically there's a fiasco.

A little thing happened in 89 in Beijing. And then so it scared the crap out of all the Western countries. They left China. My dad being an opportunist, growing up in, you know, the Great Depression, said, let's enter China. And so we started, they started a manufacturing business in the 90s in China, right when it opened up. And so when I was growing up, because I was born 1990, I saw the drastic difference between wealth and poverty

growing up, because there were a lot of really poor people there. And there's one instance, and I consider this the beginning of my money story, is, is that when I was a kid, I was probably five years old. I was old enough to remember things, but not really old enough to kind of understand things. And so I, we went to some party,

like a dinner in a apartment in Shanghai. And coming out, there were beggars that were at the base of the place. And there was a boy that was my age. And he walked up and I felt so bad. and I had a coin that was given at the party. It was a fake gold coin. I didn't know that, but I was like, oh, here's this coin.

Maybe I can give this kid a coin. And my mom ended up buying them food, and then we left. And then later they said, Hugh, the only difference between you and that beggar kid growing up is that you were born to us. You don't deserve anything in this life. You're just lucky. So you should appreciate it. And that was one of the very first things that I ever remember, period. And it was about around money and hard work and that kind of a thing.

Your mom sounds pretty... Tiger mom? Pretty much like a realist. I mean, when everyone grows up poor, they were like, the only difference between you and them is you were born us. So that could have been you. So appreciate everything and work hard in life. Well, let's fast forward to high school.

How long did you live? It sounds like you grew up in China. How long did you live in China? From age zero-ish to age 10, I traveled back and forth. I didn't really have a good education because I would be like in a few months at this school in the U.S., a few months at a different school in China. And then at age 10, they were like, oh, this kid's dumb. He's not getting good college learner.

He's not getting good learning. So they put me in a boarding school. And I was actually in the military school from age 10 until 18. And so that's kind of where I got my original background and discipline and that kind of stuff. Okay. So what was your financial position coming out of boarding school? I'm assuming zero-ish. So I had, we didn't have the opportunity to work jobs while in school.

So I didn't have the work hard to earn a car or any of that. And so I really, we didn't have, I think. I think we had like a $20 allowance, like a week or something that they give. But other than that, you're just like, we're not taught about money at all. So I really was completely unprepared. So leaving high school, what I was able to do was I only applied to senior military colleges intending to pick up a military contract. But I wasn't sure because I didn't want the parents to have to pay for college.

So I ended up going to Texas A&M and I joined the fight in Texas Aggie Corps cadets there because they give you in-state tuition was a very good part. And so I end up going to college. That's not why you went. You can't just not tell the truth on this show. So they had, I think, so there is something that have it. So it was an all-male military boarding school. And at one of the career fairs, I had Major Hoffman was like, hey, come to Texas A&M.

There's 40,000 women here. And I was like, I'm scared of girls. I should probably go to Texas A&M instead of West. point. And so that's where I ended up going because that sounded way better. It's like, that was probably at least like 30%, 50% of the reasoning. Because they're just kind of normal, normal life there. I think that's a logical reason. So I had scholarships, I made good grades, and I had some in-state tuition and then some basic assistance. But I was very, very fortunate. My parents decided that they would pay for my college. So I end up exiting,

college basically with debt-free, and that was pretty much it. And also, I was in the Corps cadets at Texas A&M, so I did not have a ability to work during the time. Okay. So were you in the military? What's the Corps Cadets? I don't know what that is. The Corps Cadets is the ROTC program, and it's the feeder for the officer program into

military. So in order to be an officer, generally you'd go to. to college, attend an ROTC program, pick up a contract where the military pays for your college, and then as a debt to pay that off, you then join and enter the service. For me, another reason I chose to go to Texas A&M is because I wasn't sure, because at that time I had been in a military school for eight years when I was 18, and I didn't know if I wanted to go, actually go active duty. So I had two more years to decide by going to Texas A&M. So that was one of the other factors as well, as opposed to had I picked up the West Point contract or something like that,

then I would have absolutely had to go into the military. And I just decided that I'd want two more years to figure it out because I'm 18 and I don't know what I'm doing. Hugh ultimately ended up marrying into the military for a little while. I frequently refer to him as my favorite dependent. Yes, yes. Yeah. After I graduated, I went to work for an oil company. So exiting the position in college, the last thing that I did was I was looking for credits and I volunteered for a financial advisor to run their computer systems because I was an IT. I was an IT background. And that's what I studied in college was MIS. And luckily, as in exchange for doing the IT program, the financial advisor taught me about pay yourself first.

And outside of that one instance when I was, you know, four or five years old and then growing up, My parents never really talked about money. And honestly, I don't think, even though they were very successful, I don't think they really knew how to use it as a tool. They just knew it roughly. And then it was that few months that I spent as an intern where the financial advisor was continuously teaching these courses and I would be there, you know, making sure the computers run correctly or whatever. I heard about pay yourself first. And that was pretty much the only preparation I had for actual finances moving into. being a young adult. Oh, at high school, I did get a D in accounting. Oh. But that's D for

diploma. Dees get degrees. So, okay, so you graduate college and you go, you said to work for an oil company. You know, I don't see that you're like a chic, you know, with like millions and millions of dollars worth of oil at this point. So what's the trajectory from there to cue nowadays, right? What changed? So that's a, that's, but so I graduate college. I then move to Bartlesville, Oklahoma. Very fancy town. You drive to Kansas to get beer because Oklahoma is just not good.

In general, I'm working for the oil company. It's, I think I started at 75,000 a year, but it's also in rural Midwest. The engineers were, they came in at 100,000, but there's a problem with Bartlesville, Oklahoma, and it's that it's in Oklahoma and there are no available single females that are there, they're either already married or there's a lot of

wealthy people, because there's not wealthy people, people with very good paying jobs, W-2s working for this one company that keeps the entire town afloat. And it was just not much to do. And so I started reaching back out and I ended up meeting, a

friend I knew in college and we end up flirting, chatting, end up getting married. And so I quit my job and I had 12 grand saved up, which I thought was the most, most money I'd ever had. Like, oh, 12 grand. Like, this is going to be incredible. I'm going to move to San Diego because she's being PCS to San Diego. And so I arrive in San Diego with no plan, no job, and then end up talking my way into another IT job, but that's basically the transition out. You were making $75,000 a year living in a town where there was nothing to do and you saved a whopping $12,000.

Yes. I don't like to shame people on this show financially for past misdeeds. I will make an exception here for you because you bought your way onto the show. But what were you doing with your money when there was nothing to do? I think there was a lot of alcohol involved. Um, there was, I definitely started buying home brew equipment and also like most young. Oh, that's, there's a lot of money right there. I think that was, I think it was like $1,500, $1,500 to get started for all the equipment that you needed at the beginning.

But also it was like the first time ever I'd had money and that I made the money myself. So it was your standard like, oh, cool. Like, I'm bringing this paycheck in every two weeks. And regardless of what happens, you know, I'll be. fine. And so, you know, I think it was video games and homebrew and a lot of was also going out to eat. You know, oh, we'll just go out to eat. Who cares? And also the, because there wasn't very much to do, there was a really tight friend group that we had. And we'd also go and, you know, do, I don't know, 22-year-old things, which is good at house parties and eat out. I want to do a little bit of a

self-promotion for my own little spending tracker experiment that is ongoing. this whole year and say that I asked him, point blank, what did you do? You had nothing to do in this little town and you were making a lot of money. So where did your money go? And he's like, I don't know, it just went wherever. And I'm guessing, looking into my crystal ball, I'm guessing that you weren't tracking your spending in any way. No, the only thing I was doing was I was because of pay yourself first, which I had to define in my brain as steal from myself before I could spend it and then blow it, right? For those of you guys who,

they talk about pay yourself first quite a bit on this show. But basically, I would immediately get, I think it was like $500 a paycheck, and I had it go somewhere else first. And then what was left in the, and then I paid the bills, and then what was left, I would blow. So I didn't know anything about investing then,

and had no idea. I think I maxed my 401K for the matching, but that was, I mean, that was better, pretty much it. Okay. So first of all, no, it's not stealing from yourself. It is investing in your future. And second of all, that's the way I justified it. I was like, I have to hide it from me because I'm dangerous or else I will spend it.

So I have to steal it first so I don't think about it. It's not stealing. Okay. But anyway, whatever you have to do to invest, but it's not stealing. It is investing in your future. So what did you do with that $500? So after $1,200 were saved up. I then got this fancy idea that I was going to move into California,

and promptly I spent all of it because California is very expensive. So I thought I was like, oh, this is like a year runway for me. I'll be fine. I guess I think what Mindy was asking before we dig further into that part is, were you just putting the 500 in a savings account and letting it rot? Yeah, I would just straight up putting in the same. I didn't, it wasn't even a high yield savings account.

It was just a savings account. Actually, it might have been a checking account. I don't have that bank anymore, but I just didn't know what I was doing. So I was just saving it. That was like your standard. Oh, this is an emergency fund. I really didn't understand what investing was. I didn't know anything about, you know, a simple path of wealth.

They didn't know anything about S&P 500 index funds. I knew nothing. Okay. So that $500 that you would take from your paychecks was the $12,000. that you moved to, oh, I thought you were investing it, like putting it in an after-tax brokerage account or something. Oh, okay. I got a Missouri education.

You might not have actually gone into the military, but he did a lot of the same things we all do, which is alcohol. I might as well bought a brand-new corvette. Yeah. Well, at least you'd have a hot car to drive then. I mean, no, you should not have purchased a brand-new Corvette either. Okay. So back to plugging my thing because I never actually got around to plugging it. I am tracking my spending this whole year publicly. You could follow along at biggerpockets.com slash Mindy's budget. You can see that in January, I blew my budget. In February, I blew my budget. We are recording this in the beginning of March, but I already know that I have blown my budget in March because three for three. Because budgeting is hard and tracking your spending is something that you have to do. all the time or it all goes out. It's so easy to spend money. And it's so easy to get to the end of the

day and be like, well, I had $40 in my wallet and now I have three. I don't remember where I spent any of that money. Oh, wait a second. I got a cup of coffee and that was like $3. Where did that other money go? And it's so hard to try and remember just even in the course of the day where your money went, let alone, like, what year are we talking about when you were in Bartelsville, Oklahoma, and just graduating from college? That would have been 2013. So this is nine years ago that you did all of this. And I mean, I can't even remember what I did nine hours ago.

I was asleep nine hours ago. But, you know, like, this is really hard. So that's why I'm tracking my spending. My friend JT. Yes, JT. Another shoutout on the show. JT is awesome. He sends me messages all the time.

And he's like, why are you tracking your spending? Like, what's the point? The point is, I want to be conscious of where my money's going. And the only way for me to be conscious of where my money is going is to track my spending. And this is just going to be a whole bunch of plugs right now. But Waffles on Wednesday wrote an article about how to create a mobile spending tracker. It came out. They published it right at the same time that I was talking to my husband and saying,

I wish there was like a customizable mobile spending tracker that I could have on my phone so I could put my own little categories in. And then like the next day, Waffles on Wednesday was listening to my conversation, I guess, because they came out with one. And it's based off of a Google form that goes into a spreadsheet. So that's what I have on my phone. And every time I spend money, I put it into the spreadsheet. And you can follow along again, biggerpockets.com slash Mindy's Budget.

And you can see just how much I am screwing up my projections. But the thing is, in February, I blew my budget because my furnace broke. and my furnace would have broken if I had been consciously tracking my spending or not. So I would have spent even more money because it's so easy to spend money. If I wasn't keeping track of it and keeping track of it publicly, I feel even worse when I spend money than when I normally do. And, you know, people are listening and they're saying, oh, you shouldn't feel bad spending money.

It's yours to spend. Well, I don't feel bad spending money. But I feel like I need to have a reason to spend this money because I don't. need to just spend it willy-nilly. First of all, I don't need more garbage in my life. And I need to be conscious of where it's going so I can use it for things that really mean a lot to me. So clearly, alcohol really means a lot to Hugh. And then he moved to San Diego with his wife where we pick up his now. Now, were you married when you moved to San Diego? I was not. I moved there and then we got married four months later. Okay. I think there's a total of 10 months before we started getting

from the time we started dating until we got married was 10 months. So again, I'm tracking that whole military spending lifestyle, like almost to a T. So 10 months, we knew each other from college, got married, and then, yeah, so that's kind of where we started. By that time, I was able to work for a tech company that had had an office out there. and I spent the last bit of the money that I had saved the month that I got the job. So I lucked out, but I ended up getting an entry-level position. Now, I think when I got hired, it was effectively $100,000 that I came in at,

but it was $90,000 plus benefits when I, but that's San Diego money, right? So coming from the Midwest at $75,000 with very little expenses, it was effectively taking a 20% pay decrease, mainly because expenses were so much higher there. So it was, I mean, it's kind of like a step down, but I'm very lucky to have gone to that company because, one, it prevented me from being starving, but two, it's where I didn't know it then,

but it's where I eventually got the seed money to start investing in real estate. So there, still have profit first, or pay yourself first, And what I was doing there was combined. I think my ex-wife for the time was making around 100. We were making around 100. And we were able to save, I think, $1,200 a month in San Diego.

By making $200,000 a year. Correct. You were able to save $1,200 a month. Correct. Because remember, that time would have been 2014. And in 2014, I was a 24-year-old adult person. Adult person. I'm going to use that with quotations.

And then it was like, okay, cool. I'm going to do what young 20-somethings do, and you're going to go, you're going to go to the beach, you're at a parties, you're going to go eat out. It was just significantly more expensive there. So the only thing keeping us afloat is still that college internship I took, the last two months that I was there,

which was like, I think we should be saving something. And yes, that also went just into a account. I'm pretty sure it was still just a checking account, actually. Okay, so you were just saving $1,200 a month. you weren't investing $1,200 a month. But you were you participating in a 401K? Was your wife participating in the TSP program? So with that, I don't think we,

I mean, Dave hadn't written his fancy article yet, so we don't know about the TSP. And so she wasn't TSP. She was in TSP. She was probably going to be in the G fund. I don't remember because it was just a long time ago. And we weren't paying attention to it. We didn't know about money. I came from a company that had a 401k.

When I got to the tech company, it didn't have a 401K, but they did have an ESPP program. Oh. And I was participating in that. And that is actually what saved me. So I had two things going on. One, as a part of my compensation package, I was given stocks the day that I started,

but it would vest, you know, quarterly after a year. So many stocks would vest. And some of that we sold to pay for the wedding. and then there was the ESPP. Hugh did everything right, Mindy. Everything. All the red moves. I'm just doing the young company.

I'm basically a financial. There is a financial disaster to real estate master with Brandon Turner, and I feel like I'm on par. Well, I would just point out this, though, is at 24 years old, yes, you know, if we sit back right now, we look at you're making $200,000 a year and you're only saving $1,200 a month. Like, that sounds terrible. But at 24 years old, I would wager.

that that is better than probably what 90% of people are doing. Most people aren't even, I mean, when I was 24, I wasn't putting money aside other than my little like 5 to 10% TSP contribution, which I had no business in 2014 writing an article about that. So that's why I didn't. I didn't know what I was doing. I left it in bonds. So it's not, you know, it's not great.

It wasn't until 2015 that I started learning about all this stuff. So, you know, but I would just throw that out there that like I wasn't even saving $500 a month outside of the. TSP at this point in my life. So it could be a lot worse. Yeah, I'm sitting here judging you mostly because I know that you have since turned it around. I shouldn't be so flippant about it because at age 24, I wasn't even saving $1,200 in a checking

account. I was saving $0 in no accounts at all. I believe I was a waitress and I was spending all of my money that I made because as a waitress, oh my goodness, that's. money is so easy to make. You just work one night. And then, wow, you have $200 in your pocket. And it doesn't matter if you go out and spend all of it because I can pick up a shift tomorrow and do the same thing again. So if I need money, I can just work another shift. And it didn't occur to me. Depositing the money is so much harder than just spending it when it's cash.

Well, plus it's like a stack of singles. You would have to withdraw the money anyways to spend it. What kind of restaurant was this? It was a, I was a cocktail waitress. Shut up. back on track. So we're in 2014. You're saving $1,200 a month in a checking account, and you have stocks as part of your compensation. Is this a well-known company? Would we recognize the name of this company?

The ticker symbol is now, N-O-W. It's service now. It's business-to-business. I think most people wouldn't know it, but a lot of people in the industry would know it. So do you still own this stock? I don't. I should have kept one share. just for funzies.

But I don't own any of the stock. And long story short, wheels fell off the marriage. And in 2016, we basically separated. And when that happened, the divorce ate up funds from both sides. I think the only person that won from that was the lawyers. They got all the money. And we were basically, I think at the end, I paid 13 grand to her and it kind of balanced everything out.

But because it was before I was married, which I got hired two weeks before I got married, was when my stocks were awarded to me for the vesting. After we basically sold the stocks to pay for the wedding, I just, I pretended like I didn't have any stocks. I just, it was never, it wasn't the cash that Mindy was handed, waitressing. It was just, I never saw it. It was never in my account. I didn't take it from my account to go buy it.

It just plopped into the account. And so because of that, I treated it like it was not mine. Like, I didn't have it. And then I moved back to Missouri and started working for a family company. And when I did that, I straight up forgot that I had the stocks. I knew they were there, but I didn't check on them. I wasn't actively contributing to anything. I just

was like, oh yeah, I also have stocks. But I remember it was like $57,000 for the stocks when I left California. That's where it was. So that's kind of where I got. That's the last I remember checking on it. I didn't even care. But when I was leaving, there was another gentleman,

his name's Ken, and he was an ex-green beret, super cool, crazy guy. I lived up in Washington. And he was talking to me about, commodities training and how it's like insane gambling. That's awesome. So I was really intensively looking into options contracts for, for commodities. I didn't do it, but I looked into it a lot.

But he said something, which was effectively, they're going to, they being serviced now, the company. The company is going to do a stock split or when it hits $300 a share, it'll be a billion dollars or something. So I kept holding on to it, not spending it because I was waiting for the stock split, because I was going to sell it after the run-up. And so that's basically what I just kept hanging on, kept hanging on, kept hanging on. Flashboard to 2019, I get win from my friends because they're buying houses and stuff in San

Diego. And so the stock price is doing well. So I check in on it, and it's worth almost, you know, it's like $1,190. $90,000 at the point. And so here I am. I'm working back in Missouri. My expenses are lower. I'm kind of figuring things out. And then I decide that I'm going to sell, I decide I'm going to sell the stocks. And so I thought I said, you know, I remember what that guy says. He says, it's going to go to $300,000, or sorry, $300 a share. So I said it at $289 a share because I, you know, and everyone was talking about it. The hype's going to go up. It's going to go up.

So it's going to hit 300. So what I did was I decided that I was going to play it safe. And before it hit that, do that. So I woke up one morning. I was in China at the time because I was flying back and forth working for a manufacturing company at that point. And while I was in China, it sold. And I then left $225,000 in the settlement fund for the next year. year approximately.

Because I didn't know anybody. Explain that. So you sold, you set a sale price. I set a limit order at $289. So when the stock hits this, it will automatically sell. And I had sell all shares. Okay. And so I sold all shares and I got $220,000.

And when that sells on the platform, it'll go into just a settlement fund, which is a non-interest-bearing checking account. for most people. But from that checking account, you can then buy stocks. I didn't know what I was doing. I was scared. I didn't know anything about investing. I still, I probably knew about S&P 500 index funds at the time. I still didn't really know like I do now. So I just left it there. Just sitting there doing nothing. And it just sat. Okay. It just sat there and did nothing and got eaten alive by inflation for like a year. Do you want me to tell you what now is closing at right now? I just did the math. Yeah. Did you look it up? You would have 398,600

$15-ish. It's $5.12. I think I did the math once, and it would be like $300,000 today. But now I'm retired financially independent and have, I think, about $200,000-ish in stocks as well, but then I have some real estate now. But this is a good, no, this is a good point to make. You made a couple of financial missteps throughout your beginning. journey. And then in 2019, you took the seed money of, what did you say? It was $225,000 is what you sold?

That I owed taxes on. Oh, we didn't even say the T word yet, that you owed taxes on. Yeah. So I sold that and then I owed money on it because of the price difference. So I think I was technically should have only had liquid $183,000. However, I did have $225,000. Did Uncle Sam come knocking on your door and say, hey, hey, remember me? Well, they did, but I was like, ah, I have a few months to figure out how I'm going to pay that back if I need to use it. But in the meantime, I'm just going to keep it in the settlement fund. Perfect.

So while your money's earning interest to the IRS, you're not earning a return on it. I'm not earning a return on it. And when I sold it, I think it was March. I think it was March when I sold it. So it just sat there the rest of the year. And then it wasn't until next year, next calendar year that I was like, oh, yeah, I still had the money. I didn't do anything with it. So I could have just paid that off.

But instead, I came up with a better idea. I was going to be financially independent. Oh, great. So here I am in Missouri. And I'm like, you know what? To live life, the secret to life, is to have low expenses. What better way to lower your expenses than to go and buy solar panels? $180,000 worth of solar panels, to be precise.

I know a lot of better ways to lower your expenses than to buy $180,000 worth of solar panels. Well, the government was going to give us money back. It was like 30% or something back then. So that's kind of where I started. I started on that path. Wait a second. If somebody just gives you, here's a really great idea. And here are 10,000 really bad ideas.

Do you just look and see which of those 10,000 is the worst idea to pursue? I don't think the worst idea. I think it was a bad idea. But it wasn't the worst idea. So what was your thinking behind the solar panels? Because I know that solar panels really do seem like they're a great idea. But when you look into the money, they're actually not. And it's sad.

They're okay. I think it was, I factored in, it'd be like 11-year payoff. And my thought was being an IT background and I went into manufacturing, I have a very engineering, tinkering, analytical mindset. So I'm all probably lumped into groups of people, maybe like Carl even, where I'm going to do stuff to see if I can do stuff less because I need to do that thing. So I was, my plan was, get rid of gas, electrify everything in the house, put solar panels on, figure out batteries, down. the road. And that was kind of my thoughts around all of it. How can I offset that? Because the house I live in was built. Actually, you can see some of it here in the picture behind you in the mirror.

That's actually the bottom of an 1851 log cabin with no insulation. So my house that I live in now was the one that my father built in, well, kept adding onto in the 60s. So it's like a horribly energy inefficient house. And it's costs. about $10,000 to $14,000 a year just to operate and maintain it. That's just in utility costs. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact.

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Get more with Northwest Registered Agent at Northwest Registered Agent.com slash money free. Okay. I was going to ask you how much could your utilities be? Have you heard of insulation? Because I just reinstated my house and it was significantly less than $180,000 in solar panels to do so. And I have.

I'm teasing Hugh in a way that I hope comes across to people who are listening who are like, wow, Mindy's being really rude. Now, I'm just teasing Hugh because I know that he's, we're up to 2020 and it still hasn't gotten

any better yet. And it has. No solar panels, no insulation. But if you have a house that is leaking air and it costs a lot of money to maintain the heat, Step number one is close up all the air holes and then find ways to insulate this house so that it doesn't cost so much to heat rather than put $180,000 worth of solar panels out in your backyard to generate more electricity. Free electricity.

It's clean electricity. It is not free electricity. Not to say that that wouldn't work, but I'm also going to throw out there that if you had seen Hughes House, you would understand that the idea of insulation is kind of a... can't insulate the house. So huge, that was built over like three or four generations and it involves like it's built in like a horseshoe

around this. Imagine a hotel sized pool, hot tub, gazebo like encased in like a green room that's just solid glass. And so like and it's an energy nightmare. It's a super cool house. But it is a efficiency nightmare

for energy. I'm sure. Before I had to pay for any of this, I was I didn't like it. I liked it when I was a kid, and then now it's like, every roof is a different roof. Every building material is from a different era.

And then we're grandfathered into the codes from the initial building of the house, which was 1851. Oh, and by the way, that's pre-Civil war.

That's $10,000 to $14,000 in the Missouri, $9 kilowatt hours. $9 a kilowatt hour. So in like San Diego where energy's three or four times expensive, like, you know,

that, it's a pretty, pretty expensive house energy was. So for me, I was thinking, I'm young. If I can offset this and the house doesn't burn down while I'm alive, then I, you know, after 11 years, it'll be paid off and I'll be making stuff. I think that was the rough calculations. It was 11 years.

And I also factored in oversizing my system. I didn't know about electric cars weren't really a thing back then. I have one now. But back then it was like, I'm going to oversize a system because I'll have a family one day, probably, and so I'll just oversize it and then electrify everything in the house. So that was my thinking behind it. But we didn't do that, thankfully. But we didn't do that.

And there's a funny story about that. Well, kind of funny. He's a bigger pockets member, though. So I'm going to pick up just a little bit. And so can't insulate the house, can't do any of that. Now, one caveat before we go into the finance side. when I was in manufacturing, all I did all the time, I end up stumbling across something called lean manufacturing,

which a lot of people recognize as Six Sigma. And there is a flavor of that I subscribe to, which is two-second lien, which is a dumbed down simpler version of lean that normal people like Hicks from Missouri, like me, can understand. So here we are. I'm now drank the Kool-Aid with that very, very big on a few, efficiency. And the fundamentals apply to everything. It doesn't matter what you do. It's kind of like gravity. If I drop something, it's probably going to fall. And if it doesn't, then there's something

drastically wrong. So I had that. That was the way I thought. Not only that, for whatever reason, and it was probably my father, instilled in me if you're kind to other people, you know, general Midwest stuff, if you're kind to other people, be kind to everybody, be polite to everybody and help everybody out. So I had an abundance mindset. I now know it's called an abundance mindset, but every time, but I was bidding four or five solar panel companies against each other. And every time they would come over, we'd spend hours and ask all the questions, the technical specs, do we want, you know, this kind of inverter or an optimizer, all those things. And, but I did this for about six months because I was going to spend the money on the solar panels

and to go ahead and do that. So what I ended up doing was every time someone came over, I was helping the solar panel people try to run their business better with lean manufacturing techniques because if they could set up a solar panel 10% faster, well, over the course of a month, then that's one extra array that they got for free

because the labor's fixed. They were going to pay that labor anyways. So it wasn't necessarily they were saving is that they could do more with less. And so every time they were there, I just kept giving them information and papering stuff out. So I finally got it down to two companies, and the bid I was going to go for was $180,000, and the guy tries to do it, and the city basically denies it.

They're like, oh, sorry, you're the very last node for the electric panel. And so we can't put solar on because you're backfeeding towards the rest of the town, so you can't do that. and so we'll only approve you up to something like a quarter of the size system. Well, at that point, we're still talking. I'm like, okay, well, we can push for it again. And the guy stops me and he says, listen, Hugh, you've been helping me out a lot with this lean stuff. Don't buy solar panels.

This is the owner of the company. Don't buy solar panels. So he's turning down a $180,000 job. He tells me, don't buy solar panels. go buy real estate and use the real estate money to pay for your electricity. It's more economically efficient. And he turned down a $180,000 job. And he looked at me and he said, cool, we had a beer, right?

Because I'd always get them talking over some homebrew. And we were sitting there talking. And he's like, yeah, it's pretty cool. Go to this thing. It's called Bigger Pockets. Go to YouTube. Type in Bigger Pockets. the burr strategy. It's B-R-R-R-R-R. Just Google that or just YouTube that. And so that's where he left me.

And then, like six months later, he went on a business, which is an unintended side effect. Yeah, you could have kept him afloat. That is kind of how I got my start. You put him out of business by not giving him that solar. Well, I hope he's at the top of your Christmas card list every year. Did you, so I know that you started investing in real estate. What was your first? property. This solar panel interaction was like in August. And then September 19th, I start a LLC. And then from there, I just start binging bigger pockets. So I started up episode one. And I basically listened from episode one on 2x speed every day, every night for three hours. 2x speed, I just watched every single podcast there was.

And then on the weekends, I think I did six hours. And so every night I was crushing six episodes of Bigger Pockets, OG podcast. And then as I listened, one month later, I think I was caught up to like episode 386 or whatever it was at that time. And I started making offers because Brandon Turner was like, hey, making a decision is more important than what decision you make. hey, making decisions more important than what decisions you make.

And so I started making offers. And so I made an offer on a 2-1, and that got turned down. I made an offer on a college rental equivalence that was kind of cat-according to campus. That got turned down. And then I tripped over a piece of garbage cement in the street, and I looked, and because I had been running deals and running the bigger pockets calculator over and over and over

for the last few months, Right, so I had zero experience, don't know anything. I noticed that there's a for sale sign in the yard and that there was a piece of sighting that was falling off of it. And I was like, oh, this is, I've seen this before. So then I had the realtor call and say, hey, ask about this house because it was just a little dinky 2-1. And the guy was like, oh, it's for sale.

But there's another 26 houses attached to it for sale as well. And they're all run down. And so I have run the bigger box calculator over and over and over, ran the analytics, and it said it was a 1.58% deal, or it was 1.6 something. And the guy won a $1.5 million, or $1.15 million to buy everything. And so the cash flow was above, above that. I think it was $15,080 a month at the time. And it was for sale for $1 million.

So even though I had zero experience. I'd never bought a house before, never tried to buy a house before. Brandon Turner was all like, hey, you should take action, take action, take action. And so I was like, well, I'm not so sure.

I'm going to check. So I'm going to email this guy. Dave Perez, some random guy, I don't know who he is. He says he's from the Springfield area. I'm in that area. So I go and I reach out to him.

And he gives me a 15-minute time window at a coffee shop. I'll talk his ear off. And he's like, I'm not going to give you any answers because I don't want you to buy this thing and it blow up on you. But I think you're saying

you're going to buy a bunch of crack houses and you have zero experience and you don't have a contractor or property manager. Oh, and again, you have zero experience. And I was like, yeah, that sounds about right. But the math says that I should do this and I'll figure it out.

Yeah. So if I can just set the stage here for like a minute because you, I don't want people to think Hughes is as crazy as he is because he's probably crazier than that. So Hugh reaches out to me and we're talking back and forth and Hugh's very, I'm going to dig a little bit. Hugh's one of those guys who he'll send a Facebook message and then have another thought and send another one. And so like we're talking and there would be like,

I would send an answer. And instead of one paragraph, it would be like, Bing, Bing, Bing, Bing. And so I was worried that Hugh, when if I was going to go to a coffee shop with Hugh to let him pick my brain that if I didn't set an end time, I was going to be at this coffee shop for the entire day. And I was in town from Hawaii at the time. And I was only in town for like, I mean, that was like, I think I flew out the next day. And so I had like a million things to do. And I was like, so I was going to this coffee shop for like three hours to work on my laptop. And I was like, okay, I've got 15 minutes or maybe 20 from here to here. If you can make that work, I'll be here. If not, sorry, maybe next time I'm in town.

So, Hugh shows up, and this was the first time we've ever interacted. And he's basically like, so I'm looking at 26 houses. I've never bought a investment property before. I don't have a contractor. Every property manager I've talked to has told me they don't want to touch these. And what do you think? And I'm like, I mean, he's right. The numbers work.

But I was like, I don't want to say go for it because, like, this is a risk you need to be okay with. So I point out the things that could go wrong because I just lost money on a flip, probably six months prior to this. And I'm like, here's an introduction to my property manager. I know she'll take care of you. Here's an introduction to, I think I might introduce you to my lender, but we don't use that guy anymore. I don't know. So I introduced him to a property manager and I'm like, call me if you need anything. I don't have a contractor.

Mine sucks. Please just, you know, make sure that you're okay. Like here's everything that could go wrong. Make sure you're okay with that. And if you are, go for it. because the numbers, the numbers absolutely worked, but, you know, it's just a big risk. And so that was pretty much the whole conversation. And then we didn't touch base again for, I mean, we talked every now and then.

And like six months later, you and I are, you know, buying deals together and doing whatever. I'm going to jump in here because this is giving me a rash to listen to this guy who has no experience. Listen to Brandon Turner preach about how you should just take action. So he's going to jump in on a million dollar deal. for 26 crack houses in the middle of nowhere. And he's just going to do it. What do you think? The numbers work.

But I can't find anybody to work on these properties for me. This is absolutely the time that I would say, no, don't do this deal. What are you thinking? What? What are you thinking? Yeah, Dave. So, yes, David, thank you. That was so great.

There's a reason I didn't say, go for it. You've got this. I was just sitting there. I have a little printout and had like the graphs on it and there's a picture. And I was like, look at this. Look at these numbers. That's not all you need to make a successful real estate deal is a printout with graphs on it. The banks certainly didn't care. Sorry if I blew out anybody's eardrumbs when I screamed. I'll mark that. The number is math. Mindy, the numbers math.

I don't care if the number's math. By episode 300 something, I started reading all the bigger pockets books because they're the same books they tell you for all the things. all the time. And so I was sitting there. And so I started buying the books, right? So I bought Burr, I bought long distance real estate investing, you know, estimating rehab contracts, all that good stuff, which is now out of date. But never once in any of the podcasts or any of the the book, Burr, did David Green ever say don't buy something in a war zone? And then after I bought the properties, which we'll get into later, I was like, oh, David Green. does that like almost every day.

Almost every podcast, he's like, don't buy stuff in a war zone. Oh, and there's a full chapter in Burr, which I listened to three times that I never heard once, don't buy properties in a war zone. So my mind was definitely like, take action, take action.

I want to be financially independent. And the reason why is the why was, I woke up, I was 29 years old at the time. I was 29 years old at the time. And I was working a W-2 job like a normal person, And I was like, I don't want to ever, I don't want to do this forever.

And I see like the managers that were there. And they're like, okay, well, they own their house. They're approaching their mid-60s, late 60s. They're miserable. Their bodies have given up. They can't go do the things that they want to do even if they can retire. And also, I don't think they can retire. And so I just saw that and I was like, I got to do something.

I'll do something. And after 386 episodes, it's the same story over and over. And so that conviction was solidified to go buy a bunch of crack houses with zero experienced. So one thing that helped was in the Burr book and long distance real estate investing, you know, David Green talks about the core four. You don't actually need experience. You just need to talk to these people who have experience and run them well. And here's how you do it.

And my background was from operations in a manufacturing facility. So I already knew how to run teams and manage a company. So I said, oh, this is going to be weird. It's like managing a company. But just for me, they're doing everything anyways. They have the experience running a company. I don't know what's going on in people's departments. I know what should happen.

But as far as the day to day, I'm depending on the experience of all the operators, both the workers, the managers, the team leads. And I was already used to that. So I was very nervous. But I was like, eh, it says, the math says buy it. It's above the 1% rule, right? I know that's what you guys don't like to hear, but it says above the 1%. I was like, this is the one point.

Okay. So you weren't inexperienced. You were inexperienced in real estate, but you had zero real estate experience, but you had related life experience and related work experience that would translate into the real estate experience. So I want to highlight that because I can hear people listening to this show saying, oh, Hugh bought a house. How to do that. Hugh bought 26 houses not knowing anything.

I'll do that too. That's not the lesson that we're teaching here today. The lesson we're teaching here today is Hugh made it work because he had other experience that would allow him to bring in. And $225,000 sitting in a check in an account. So, I mean. in a non-interested. So there's also that. Well, this is definitely a risk.

There's a significant chunk of cash sitting for use. Yes, he didn't try to do this with no money. Right. I was just going to spend all of money that I never, I never treated that money like it was mine anyways. I treated it like it was something I was taking care of, like a dog or something. And for refresh me, correct me if I'm wrong. Some of these were occupied, right? They weren't all vacant.

Oh, right. Right. So the reason why I said it was a 1.68% rule is there were five vacancies. It was still producing 1580. On paper, it was producing 1580. Allegedly produced 1580 when I bought them. And there were also 30% under market value, every single one of them. And so the properties or the rent? The rents were under market value by 30%. And it was already at the 1.68% rule. That's what it was. I said 5.8, but it's 1.68% rule. And the houses should be like $85, $90,000, and they were all $20,000 or 26 to 35 grade. Depends on some of them were triplex and three-toes, but most of them were two ones. And they were all in what the area here, locally, we're considered, we have a area that's like, oh, it's the bad part of town. It's like meth-y people walking around and you have like burglaries. But it's not like when I was in San Diego or somewhere else.

where it was like, oh, you might die today. No, it was, it was just run down. Totally unrelated, but Hugh and I are neighbors with at least two of those properties that we know of where we look across the street with each other. So these might be like rough areas, but they're, it's not like you're going to get shot if you go there at night type of rough. It's like Midwesterners consider it a rough area. Yeah, it's like there's no graffiti. Like it's just people are doing probably just sitting in their house doing meth. But they're not like trashing the town.

So it's, it's, it's, you know. So we buy this place. I still owe taxes. Something happens. We're going back and forth in negotiation. You guys, BP told me to read, never split the difference. And so I bought the thing for a lot. And then we go to get it appraised and we finally talk them down.

I talked them down to one zero one seven, seven hundred and sixty six dollars and 11 cents. So I've set like a very specific number. And this was like three four and a lot. People are driving right now trying to figure out. where the comma goes in that. 1.01. $1.1 million,

but it was like, I had like very specific stuff. And it was, we went back and forth with the whole numbers and then we stuck to that. Then we got everything on her contract.

I went to go buy it. The bank was like, cool, it's going to appraise. The appraisals were like, this is not worth that much money. What are you crazy? And so we were,

I was just like, oh, I guess the deal's dead. All right. Thanks for, see you. And then they were like, oh,

we'll come down on the price. I accidentally negotiated them further down on the price. I didn't know I was doing that. I was just like, yeah, the bank said it's not worth that much. And the realtor was like, oh, you should try to get them down some more. This is great. And I was like, oh, it is? Oh, okay.

So they came down on the price, and I think I ended up buying it for like 1-106 or whatever it was. They lowered it even more slightly. And then I had to bring 20% to the table. I had $225,000. and I needed like 251. So I go and I ask family for a loan. So I'm now, first of, I owe taxes. So technically I have 183,000 or something to spend or 187,000 to spend.

I knew that. And I used all of the 220,000 and borrowed another 25 from family to basically be like, all right, like the number. works. See the number? I have a graph. There's a piece of paper. See? And so, I found a bank that took a chance on me. And it wasn't very good terms. And they were like, this guy. I don't know about this guy. But we'll loan you money. So I ended up buying the 26 crack houses the last day of December of 2019. And immediately they shut the, in order to, I didn't know, I know, at no experience property manager,

they were involved, they kind of knew what was going on. I needed a commercial account for the Triplex. A commercial account takes three business days to set up, which I learned. But the previous people

had already cut power. So the day of happens, they cut their power. It's like 30 degrees out. And there's snow on the ground. And I was like, oh, great, this is what all the things look like.

So I just started everything off with a bang with your standard horror stories. And that's kind of, That was the very beginning of my, technically I was financially independent at that point because I cash flowed stuff. Okay. That was the very beginning. You know, we always say that numbers don't lie, but numbers sometimes lie. You're not financially independent when your property.

They were not in good. When you were like, oh, I had a water heater go or my furnace went out for $800. I was like, who, that's a cheap. I know a lot now about, I had a very good education. Over the last. What was just a fan that I fixed? We replaced the fan. We didn't replace the whole thing.

Oh my gosh. A fan for 800 bucks? Well, probably a fan for 20 bucks and a labor for, you know. It's a fan for like 150 and labor for whatever. And my husband was leaving the next day and it was 13 degrees outside and you do what you have to do when you don't want your pipes to freeze or be frozen. Yeah.

I've got. Yeah. I've got one like that right now. Okay. So once you get all the power back on to all of your houses, how long does it take you? Oh, just one house. Oh, okay. It's just a triplex. How long does it take you to get these up and running and performing?

Are they all? Do you still own all of these houses now? I own all. Actually, last week I sold two of them to, I started a BP meetup because, you know, Brandon Turner was like, there isn't one start one. And then I was like, oh, I recognize that Dave guy. He did that in Hawaii. And then I was like, well, there's no one here, so I'll start one. And so people start showing up.

So at the time I sold it, which was last week, I basically, I don't want to say I'm too lazy to deal with a small house, a small two one. But it's just as much effort to do the little ones as it is to do like an 18 unit apartment complex. So that's kind of what I'm doing now. So I end up by own all the other ones. And it's been great because I, I took myself from your W-2 to financial independence,

with the definition being that my expenses and my income can go sunset. And then I scaled a team very quickly that worked for me. And I'm about to make that retire the company, where the operations of the company indefinitely exist from the income generated from that. And that's, I'm very close to that goal now. But most of that. So you are financially. I'm financially. I'm a, then I scale the team of four employees. And then we're financially, we're going to make that financially independent indefinitely in perpetuity. Allegedly. Just on these 26 properties? Or there more properties? No, that was just the beginning. And so what

you really took this to heart. Jump in, do it. And they've all been, I won't say they've all been just as crazy, but they're, I don't know that Hugh owns anything normal. The numbers tell you to do it, so you do it, because the numbers say, you should do this. We'll get to this one, but I may or may not have a TikTok with 1.2 million views on one of Hughes properties right now. We'll get to that one in a minute, though. It's good. So, so basically I spend that, and I didn't realize this, but I had prepped and prepared for Burr, and I was like $225,000. $183,000, $187,000, whatever it was,

I can burr with that in my area. That would be fine. And then I effectively had no idea it was doing because I did a traditional purchase. I took 20% down and I borrowed 80% from the bank, no different than anything else. And so I had no idea that I, what to do next. I was like, oh, I don't have money for renovations.

What do I do? And so what I did was I cash flowed, I took the cash flow and my W-2 earnings and, I don't know, odds and ends, stuff I was selling to then constantly pay for all of my properties. And so I would just do, I'd rehab a renovation and then I'd go on to the next one and a rehab and go on to the next one. But I didn't know how to burr it back out. So finally, I do this for a while and 10 months later, I actually successfully pull a burr off with, I think I had done five properties at that point.

So I burned all the money back out. I got, I think it was $297,000 out. I refinanced all the properties, and then I created a loan out of no loan, just for negotiations with different lenders in town because I shopped it back around because I wasn't happy with the first lender. I told the lender to their face.

I was like, hey, I'm not very happy with this, but thank you for giving me money. By the way, everyone else in the nation is doing this, can you guys do something? And they kept saying no. So I negotiated, found another lender and moved over. Once I had that $100 something $1,000, but at $290, I then paid the family loan. I paid the family member back off. And then I think I bought a bunch of Tesla stock right before Battery Day.

That was a thing. and then, yeah, and so I put that money back into the stock market. By that time, when I got bored with the BP podcast, I listened to the BP Money Podcasts. I also started episode one. And I would just mix that in if I was just too burning out of real estate. And so I put a bunch of the money into VTI and VTSAX. Pay your taxes. And I set up the auto draft.

Oh, taxes. It would be a deal if you didn't pay. Q is actually a tax evasion specialist. That's how he built his portfolio. So, and then I paid my taxes, and I think there was a penalty. of some kind. Oh, I bet there was. IRS normally charges, I think it's 4% interest on anything that you, outstanding.

It was late. And then there was something, I think I extended my taxes that year, the tax year. Of course. And then I ended up reporting it all. And then I paid off my taxes. And so on the end of it, I think I was left with 100 grand that I could go do stuff with. Now, wait, 100 grand after you had completely pulled all of the money that you had put into these houses. Out? Correct. Okay, so you own 26 houses that are generating enough income that you

can live off of them. I then, I think at that point, I remodeled five of them, and I upped rents. And then as I up rents, the value of the properties increased because I had also remodeled them. And then when I, I basically did one big burr. At the beginning, I did one big burr where I just moved from Bank A to Bank B. And when they got them all reappraised, the value, was much higher because they weren't, I mean, some of these wouldn't have normally gotten lending, traditional lending at all. And now they were in that 85 to 95,000 dollar range for most of those. So I was able to burr out a significant amount, but it didn't matter because the note was still well paid for by the actual loans, by the income from the properties.

I'm trying to wrap my mind around the financial position just on these 26 properties. So you purchase 26 houses with your $225,000 plus your 30-ish thousand from your family member for your loan. Then how long before you refinanced that? It was 10 months. 10 months later, you refinance and pull all of the money back out so that you can pay off your $30,000 loan. I think I pulled $279 or $276,000 out. Okay, so you pay off your family member.

You pay off your taxes. Taxes. You still have $100,000 left. Right. And then some of that I used to then buy the Tesla stock. Okay. So you now have free and clear, well, not free and clear. You own with no money into the properties, 26 houses.

So you just have free 26 houses. that generate enough income that you don't have to have a job anymore. Ever. So I think it was technically, it was 10 months after I purchased, and I did the first burr. And by that time, I had only burned, I had only refinanced, I think, a quarter, 25% of the portfolio. And so even today, I think I still have five houses or so that aren't turned yet. We just got a refi back yesterday where I think we bought the house. I bought the house for 35,000, appraised for 55, and then we renovated it.

It just came back at 111,000. But that's mainly due to the craziness with, from the time I bought it, you know, 2020 and COVID and all that stuff happens. So there was like 25% market inflation or something. So I pretty much just rode that up along with the renovation, the forced appreciation. but I pulled $102,000 out of that. So how are you financing these? Because this sounds like a traditional loan,

but you can't have more than 10 properties in your own name, or 10 loans in your own name, right? That's a great question. So I also, because I had zero experience, did not know about conventional loans versus commercial loans. And I blew right past conventional loan, shot myself in the foot forever being able to own anything with a conventional loan.

and I just started it with a 25-year, actually that one was a 20-year, five-year balloon note. And that was a commercial loan. That was the very first one that I- To purchase all 26 in one loan. To purchase them. When I refied out, I negotiated basically Rosie's deal. I designed Rosie's deal, which Brandon Turner. Oh, I'm like Rosie's deal. What is that?

Well, he said, negotiate with your lenders. Yes. And so I basically, I bid it back out in the market. and then there was a local lender, and I was able to end up getting it instead of 20 years, I was able to get it for 30 years, 85% loaned value, and that's probably where I'm getting most of the money from.

It's 85% the LTV, and I will never sign a balloon unless I have to. And so I sign an arm, but the arm has a ceiling. So that's kind of where the Rosie's deal thing came in was. I was comfortable signing an arm, I knew about the Dave Ramsey's and the people getting in trouble in 08. So I didn't want to overextend myself, but I wanted to borrow as much as I possibly could

because I am informed optimist, and I believe that inflation is going to happen. So I was trying to borrow as much as I can to get started out as early as I can and fix it for as long as I can. And I was no, you know, and so I didn't want to pull a Dave Ramsey and sign, you know, 90-day balloons and then complain about it to the rest of the world for the rest of his life. And just to clarify for anyone listening, the lender that Hugh and I use, well, for one, he's amazing. But it's a portfolio lender.

So this is a bank that holds everything in house. And so they're able to do things that most lenders aren't willing to do. I mean, I've had an experience before where I bought a property. And the board was like, oh, we don't like how that property looks. I don't think we're going to finance it. And then he called me. And I was like, well, I bought it for 90 and it brings in $2,000 a month. And he was like, okay, you're approved.

Like, you know, so it's that kind of a bank. But they also only lend in like are part of the state. They won't even touch other cities in the state. So I can't remember, but a lot of the BP podcast will tell you to go to your local lenders because they, they just beat out all the national guys. National guys are probably great for conventional loans, but commercial loans. Some of these smaller towns, it comes back to, you know, a handshake and, you know, your word and you can get a lot of very good loans.

And by that time I was a proven seasoned operator with my 10 months of experience. Remember, it's the same amount of time that I was married for. Oh my gosh. Or that I dated party. And but so, but yeah, so I was a season operator and I say season operator jokingly, but I had rehabbed five crack houses. So I had the crack house issues with the roof and all the,

plumbing needs to be fixed and all the terrible things. And oh, the guy owned it from the 70s and never update anything once. And oh, this has not been to wiring. And all of the thing. I learned painfully how a house works. I basically built a how. I haven't built it. But I was there making the decisions about what needs to be done to very old houses. And so by the end of the 10 months, I was really experienced in estimating cost, rehab costs. Because if I got it wrong, then I had my paycheck and all of my cash flow and I was going to be selling more stuff. And so I got really seasoned with being able to do that. And that's kind of where my experience was at that point.

Hugh, this has been a super lot of fun hearing your story and hearing your real estate story. It's also given me a lot of the heby-jeebies because you've made it work and I'm so excited that you've made at work, but I could see these also going completely sideways. And I want anybody listening to understand that you have made calculated risks based on, first of all, being funded. Just because you had to owe taxes on that money, which I would have paid off first. And I would have made different decisions, but it isn't my story. It's your story.

You had money to buy. You weren't borrowing all of the money from somebody else. So you started off with a good financial foundation. and you had, you had experience, life experience and work experience that allowed you to not start from ground zero. You were, you were doing things, you were taking your experiences and moving them forward. So it wasn't like you were just figuring it out as you were going. You had processes in place.

And these are proven processes that work in business. They do translate very well to real estate. So it sounds like you started from zero, but you didn't start from like ground zero. And I just want to reiterate that before somebody, like, hey, I heard Hugh just jumped in with both feet, not knowing anything. So I'm going to do that too. And why did his succeed? I'd recommend not doing what I did. Don't be like you.

It was, I would do it again. But now I have a lot more experience to know, like, what not to do. But I'd say I definitely lucked. I was very, very lucky and fortunate. Thank you for using the L word because, yes, you were very lucky. I was very lucky. I mean, I had zero reserves. I borrowed an extra 50, and I owed a lot of money to the government,

and I took the risk anyways, because I believed that the numbers and the fundamentals would have worked out. And the biggest thing I had was education, except for like, you know, $12 books, $20 books from bigger pockets. I think I was all of $200 into education and a lot of free content from online, and you guys really set the fundamentals. And so it was a, I mean, I was very, very fortunate, very lucky to be able to pull it off. But I also believe in the definition, the Seneca's definition of luck, which is luck is when preparation meets opportunity.

And so I was lucky that it happened because I was prepared. And I was fortunate that nothing incredibly terrible happened while owning them so far. That's a great way to phrase it. And it sounds like I'm dismissing you, but I'm not. We still have the famous four questions. Are you ready, Hugh? Woo. I am.

Famous four plus one, right? Famous floor plus one. Famous four questions plus one demand. So the first question is, what is your favorite finance book? My favorite finance book. It's going to be tough. Personal finance or business finance? One of each.

Okay. Personal finance is if I could go back in time and smack myself as an 18-year-old, I'd force me to read SEPFER Life by Scott Trench. And for a business book, my favorite finance business book is Profit First by Mike McAulwitz. He is, if you are a business owner or you're entering into real estate or whatever, you're going to sell wicker baskets, you should read profit first if you're going to step out into making your own money. And the earlier you do it, the better.

But if you already are, you know, years deep into your company, read it anyway. because you'll end up getting something from it. It's just a very practical, straightforward approach in running finances for your company that even me, a hick from the sticks from Missouri can understand. I switched over to profit first about three months ago after Hugh and I

had a long conversation and some whiteboard math and I sleep a lot better now. Having money set aside to pay your taxes, to Mindy's point, like, I'm like, oh, thank God, like, at least I can pay my taxes and my loans. Like, I might, everything else might be okay. They're terrible, but I can pay my taxes on my loans. Well, because I'm scared of the IRS.

And we just had a plumber snafu, so we went $6,500 over budget on a renno. And, you know, having $10 grand in the tax account already for the year, it was easy to go, okay, cool. Now we'll cover the rento, and then we'll put it back in on the refi, which is much better a spot to be in than not having money sitting on standby in a tax account. So it's a good safety net. What was your biggest money mistake, Hugh? Oh, my biggest money mistake. There's so many to choose from. There's so many.

The first 45 minutes of this show. Yeah. I'd say the biggest money mistake I ever made was not learning sooner about where to put investments. Like if I could go back at, if I could go back in time, I'd say I would have started investing I was 18, but biggest money mistakes hiring employees. That's very costly. That is true. That was a joke.

No, employees are awesome. If you have the right ones. I didn't know anything about investing. Several times, Mindy was like, oh, where'd you put the $500? I'm like, yeah, I saved it. Like you literally put it in a savings account, in a checking account. Oh, I think it was a checkings account. Yeah.

I did not know what I was doing. Okay, let's look at that for a second. You did not know what you were doing, and yet here you are. It is still possible. to figure out your finances and fix your mistakes, even if you have literally made them all, as Hugh has literally made every mistake financially. It is still possible to turn your finances around and set yourself on the right trajectory by jumping into real estate with both feet, knowing nothing.

I knew that it was going to be important to save, but I didn't know what for. I just heard save, so I did. One day I found bigger pockets and I was able to use it, which all of your listeners already know that. But it was that I saved. In the future, it was helpful. What is your best piece of advice for people who are just starting out? I'd say jump in with both.

No, don't do that. I'd say get educated. Learn, read, listen to podcasts, question everything. Question this podcast. Whatever you're doing, just because I did it or someone else did it, figure out why, what was the circumstance. Learn the fundamentals and run the next. numbers. Practicing makes you a lot more comfortable with things. And so whatever that is,

like if you're going to, I don't know, be a gardener, start doing things with it and keep notes and practice and learn all the things you want to do about whatever it is that you want to do. So get educated. What's your favorite joke to tell at parties, Hugh? Favorite joke to tell it parties. I have a good finance joke, but it's, I generally don't like to brag about my financial situation. But I have credit card companies that call me every day, and they tell me that my balance is outstanding. For more really, really, really terrible jokes like these,

Hugh shares them in our Facebook group, which you can find at Facebook.com slash groups slash BP money. Okay, Hugh, for people who aren't in our Facebook group, and really, if you're not, you should join. Where can people find out more about you? I have a YouTube channel. It's called The Hillbilly Millionaire. And I also have a website called

Hillbilly-Millionaire.com. And so, yep, that's where you can find me. Okay, and we will link to both of these in our show notes, which can be found at biggerpockets.com slash money show 289. Hugh, this was a lot of fun. Thank you so much for your time today. This was really great to get to know your real estate investments. And, oh, my God, those money mistakes have made me really, really, really sad.

but I'm so glad you were able to turn it around because wow, wow, that was a lot of cringe in the beginning of this show. Yes. And probably more to come. No, no, you figured it out now. No more money in a checking account. Thanks for joining us, brother. Well, yeah, thanks for having me on.

You know, this has been a dream to come on bigger pockets. And I think I have that idea that everybody has when they first do it. And they said, I'll be on bigger pockets one day. And here I am. Okay, Hugh, we'll talk to you soon. Okay, David, that was Hugh Carnahan and his, you know what, he should be called Hugh Carnival because he has a crazy carnivalesque story and carnivalesque life. So we're going to call him Hugh Carnival from now on.

I mean, there's only a few minutes left for the show. I always introduce Hugh as my eccentric millionaire friend and he never disappoints because he is, you know, I mean, who goes and buys a missile silo, right? Like, that's a, and that was. Who goes to buy 26 houses? Well, that's also, yeah, yeah. So my first few interactions with Hugh, I thought he was a little off the, off the Hilt.

And then the more I've gotten to know him and the more I've gotten to partner with him on deals, the more I just realized that, you know, yeah, he takes some risks, but he's a smart dude. And he's savvy. He's good at building teams. He's good at scaling. You know, and it's a lot of those things that come together. And it's helped him out.

He's doing well. Well, and if you listen to him, he didn't say, I bought 26 house. because I knew I needed to start investing in real estate. He said the numbers made sense. So he looked at it more than just, oh, that would be cool. Now I have 26 houses. He still ran numbers. He still did the preliminary research that he was supposed to do.

Maybe he could have done more. I can't believe he did that. I would have said no. At the coffee shop that you were sitting with him at, I would have been like, nope, not a chance. Run far. I would run far from that and I'm more experienced. But that's, I'm also a cautious investor. And I'm not, I don't invest in that class of home.

I don't want 26 houses. I mean, even if I had one point, whatever he finally paid for that, I would not want 26 houses to manage. So that property wouldn't appeal to me. That deal wouldn't appeal to me at all. But for a first time deal, I'm so glad he made it work because I could see a thousand different ways that it wouldn't. So I'm really glad.

But, you know, the reason that it worked is because the numbers made sense. The fundamentals of that deal were in order before he even started. And that's really what's so important. That and what did he have, like 368 episodes of the podcast that he had listened to, which is probably something like 500 hours of education. And if you're going to educate yourself, one episode isn't going to be enough. No, definitely, definitely worth doing your homework. Even though he listened to 30 days worth of podcasts, or even though he listened to the podcast for 30 days, he listened to 500 hours and 30 days.

Man, does he ever sleep? We didn't ask him that. Well, he listens to everything at 2X as well. That's true. Actually, I think he's at like two and a half X now. So, you know, that condenses, but he definitely, he dove all in. You really, if you're going to be like this, you've got to dive all in. Okay, David.

Should we get out of here? We should. From episode 289 of the Bigger Pockets Money podcast, he is David Hip Hip, Paray, and I, Andy Jensen saying, let's go, Silo.